Question

Castle View Games would like to invest in a division to develop software for a soon-to-be-released video game console. To evaluate this decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates (in millions of dollars) (To copy the table below and use in Excel, click on icon in the upper right corner of table.) Year 1 Year 2 Year 3 Year 4 Year 5 - 11 Cash 12 16 14 14 2 Accounts receivable 25 26 3 Inventory 11 4 Accounts payable 21 12 16 25 Assuming that Castle View currently does not have any working capital invested in this division, calculate the cash flows associated with changes in working capital for the first five years of this investment. (Note: Enter decreases as negative numbers.) The change in working capital for year 1 is $ million. (Round to the nearest integer.)

solve for all 5 years

Answer 1

solution: Year 1 Year 2 Year 3 Year 4 Year 5 Cash Add Accounts receivable Add Inventory Less Accounts payable 14 12 5 16 14 19 23 25 22 26 4 9 11 12 16 -21 -16 -25 -28 -32 Ending working capital Less Beginning Net working capital Change in working capital 24 20 12 23 27 0 -12 -23 -27 -20 4 12 11 -7