What effect is expected at the end of the life of a project that initially required a $20,000 increase in net working capital?
A) The $20,000 must now be paid by the firm.
B) The firm receives a $20,000 cash inflow.
C) Taxable income is reduced by $20,000.
D) No effects are expected from sunk costs.

Question

Quizplus · Accepted Answer

The increase in net working capital represents an investment or cash outflow at the beginning of the project. At the end of the project, the net working capital is released, resulting in a cash inflow for the firm. Therefore, the expected effect is a $20,000 cash inflow.

What Effect Is Expected at the End of the Life