All of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital?
I. An inventory decrease of $5,000
II. An increase in accounts receivable of $1,500
III. An increase in fixed assets of $7,600
IV. A decrease in accounts payable of $2,100
A) I and II only
B) I and III only
C) II and IV only
D) I, II, and IV only
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

Net working capital is the difference between current assets and current liabilities. Therefore, any anticipated effects that impact these two accounts should be included in the initial project cash flow related to net working capital.

I. An inventory decrease of $5,000 would decrease current assets and should be included. 
II. An increase in accounts receivable of $1,500 would increase current assets and should be included. 
III. An increase in fixed assets of $7,600 does not impact current assets or liabilities, and is therefore not relevant to net working capital. 
IV. A decrease in accounts payable of $2,100 would decrease current liabilities and should be included.

Therefore, only choices I, II, and IV impact net working capital and should be included in the initial project cash flow.

All of the Following Are Anticipated Effects of a Proposed