Joel's Shop needs to maintain 15% of its sales in net working capital. Joel's is considering a 4-year project which will increase sales from their current level of $130,000 to $150,000 the ﬁrst year and
To $165,000 a year for the following three years. What amount should be included in the project
Analysis for net working capital in year four of the project?

Question

Quizplus · Accepted Answer

Net working capital is 15% of sales, so in year 4, net working capital will be 15% of $165,000 = $24,750. Since the project will increase sales, the company will need to increase its net working capital by $24,750.

Joel's Shop Needs to Maintain 15% of Its Sales in Net