What is the net effect on a firm's working capital if a new project requires: $30,000 increase in inventory, $10,000 increase in accounts receivable, $25,000 increase in machinery, and a $20,000 increase in accounts payable?
A)- $5,000
B)+ $10,000
C)+ $20,000
D)+ $45,000

Question

Quizplus · Accepted Answer

Working Capital = Current Assets - Current Liabilities
Increase in Current Assets = Increase in Working Capital
Increase in Current Liabilities = Decrease in Working Capital

Increase in Inventory = +$30,000
Increase in Accounts Receivable = +$10,000
Increase in Machinery = $25, 000 (not a current asset)
Increase in Accounts Payable = -$20,000 (since it's a current liability, we subtract the increase)

Net increase in working capital = $30,000 + $10,000 - $20,000 = $20,000

Therefore, the answer is C, a net increase of $20,000 in working capital.

What Is the Net Effect on a Firm's Working Capital