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 [blank].
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. Here, the increase in inventory ($450,000) and accounts receivable ($730,000) are current assets, totaling $1,180,000. The increase in accounts payable ($180,000) is a current liability. The advertising expenditure is not considered in working capital calculation. Therefore, the increase in net working capital is $1,180,000 (assets) - $180,000 (liabilities) = $1,000,000.

The Introduction of a New Product at Elia Pharmaceuticals Will