The introduction of a new product at Elia Pharmaceuticals will require a $450,000 increase in inventory, a $730,000 increase in Accounts Receivable, and a $180,000 increase in Accounts Payable. Introduction of the product will also require a $700,000 expenditure for advertising. The increase in net working capital required for the introduction of this product is
A) $1,180,000.
B) $1,000,000.
C) $1,360,000.
D) $1,700,000.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. In this case, the increase in inventory ($450,000) and accounts receivable ($730,000) are the current assets, totaling $1,180,000. The increase in accounts payable ($180,000) is the current liability. Therefore, the increase in net working capital is $1,180,000 (assets) - $180,000 (liabilities) = $1,000,000. The expenditure for advertising is not considered in calculating net working capital.

The Introduction of a New Product at Elia Pharmaceuticals Will