A new project will increase inventory and accounts receivable by an average of $1 million each. Cash levels and other working capital accounts are expected to not change. What effect will the project have on working capital?
A)Working capital increases by $2 million.
B)Working capital increases by $1 million.
C)Working capital is unaffected.
D)Working capital decreases by $1 million.

Question

Quizplus · Accepted Answer

The project increases both inventory and accounts receivable by $1 million each, totaling a $2 million increase in current assets without affecting other working capital accounts, thus increasing working capital by $2 million.

A New Project Will Increase Inventory and Accounts Receivable by an Average