When evaluating a projects cash flows we see that next years

When evaluating a project\'s cash flows, we see that next year\'s inventory is expected to go up by $12.000. We also see an expected increase of $8000 in accounts payable and a decrease of $2000 in accounts receivable. What would be the total impact of these changes on NWC? (Points: 5) Increases NWC by S2,000 Increases NWC by $6,000. Decrease NWC by $2.000. Decrease NWC by $6,000. Decrease NWC by $8.000.

Solution

Net Working Capital is total of all current assets less current liabilities.

Change in Net Working Capital = Change in Current Assets - Change in Current Liabilities

In this question,

Change in Current Assets = Increase in inventories - Decrease in Accounts receivable

Change in current assets = 12000 - 2000 = 10000

Change in current liabilities = Increase in accounts payable = 8000

Change in NWC = 10000 - 8000 = 2000 --> Since it is positive, this means it is an increase.

Hence answer is A. Increase NWC by $2,000