Dollar Diamond is considering a project which will require additional inventory of $134,000 and will also increase accounts payable by $37,000 as suppliers are willing to ﬁnance part of these
Purchases. Accounts receivable are currently $100,000 and are expected to increase by 8% if this
Project is accepted. What is the initial project cash ﬂow related to net working capital?

Question

Quizplus · Accepted Answer

The initial project cash flow related to net working capital is -$105,000. This is calculated as follows:Increase in inventory = $134,000Increase in accounts payable = $37,000Increase in accounts receivable = $100,000 * 8% = $8,000Net change in working capital = $134,000 + $37,000 - $8,000 = -$105,000

Dollar Diamond Is Considering a Project Which Will Require Additional