Question

Alpha Prime is considering installing a new molding machine which is expected to produce operating cash flows of $73,000 a year for 7 years. At the beginning of the project, inventory will decrease by 16,000, accounts receivables will increase by $21,000, and accounts payable will increase by $15,000. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $249,000. The equipment will be depreciated straight-line to zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $48,000 after tax cash flow. At the end of the project, net working capital will return to its normal level.

Calculate the change in net working capital. (Round to a whole number, and enter a positive value)

Answer 1

Decrease in inventory = -16000

Increase in accounts receivable= 21000

Net increase in current assets = 5000

Increase in accounts payable= 15000

Net increase in current liabilities = 15000

Net decrease in working capital = current assets- current liabilities

= 5000-15000 = -10000

Change in working capital (decrease) =10000