Investment in net working capital is included in the cash flow analysis of a capital expenditure decision in order to:

Question

Quizplus · Accepted Answer

Investment in net working capital is included in the cash flow of a capital expenditure decision to reflect the cash flows from buying and selling on credit. This is because the purchase of inventory or raw materials on credit will result in an immediate decrease in cash flow, while the sale of inventory on credit will result in a delayed increase in cash flow. Therefore, investment in net working capital is an important consideration in determining the cash flow associated with a capital expenditure decision. Financing decisions and opportunity costs are not directly related to investment in net working capital.

Investment in Net Working Capital Is Included in the Cash