Aaron's Market is implementing a project that will initially increase accounts payable by $3,600, increase inventory by $4,800, and decrease accounts receivable by $800. All net working capital will be recouped when the project terminates. What is the cash flow related to the net working capital for the last year of the project?

Question

Quizplus · Accepted Answer

To calculate the cash flow related to net working capital for the last year of the project, we need to consider the changes in accounts payable, inventory, and accounts receivable. 
Net working capital = Current assets - Current liabilities 
Initial net working capital = (Inventory + Accounts receivable) - Accounts payable 
= (4800 - 800) - 3600 
= 400

Since all net working capital will be recouped at the end of the project, the final net working capital will also be $400. Therefore, the cash flow related to net working capital for the last year will be zero. 
However, if we assume that the project terminates before the end of a year, the cash flow related to net working capital can be negative or positive. But based on the information provided in the question, the best choice is C.

Aaron's Market Is Implementing a Project That Will Initially Increase