A project under consideration by Bizet Co. will require the purchase of machinery for $50,000 and...
A project under consideration by Bizet Co. will require the purchase of machinery for $50,000 and additional inventory for $15,000. Accounts receivable will increase by $12,000 and accounts payable by $14,000. Liability insurance will increase by $2,500 per year and utilities expense by $1,500 per year. What is the investment in working capital required by this project?
$77,000
$41,000
$13,000
$4,000
Homework Answers
The answer is $13,000 (third option of the set) as shown below:
| Investment in working capital required by the project is increase in current assets less increase in current liabilities. | |
| Increase in inventory= | $15,000 |
| Increase in accounts receivable= |
$12,000 |
| Total increase in current assets= $15,000+$12,000= | $27,000 |
| Increase in accounts payable= | $14,000 |
| Net investment in working capital of the project= $27,000-$14,000= | $13,000 |
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