Question

A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $1,600,000. This in turn would cause inventory to increase by $125,000 , accounts receivable to increase by $100,000 , and accounts payable to increase by $90,000 . What is the firm's expected change in net working capital?

A) $315,000
B) $135,000
C) $225,000
D) $1,735,000

Answer 1

Answer:

D) $1,735,000

Explanation:

Change in Net Working capital = Increase/(decrease) in sales + Increase/(decrease) in inventory + Increase/(decrease) in receivable - Increase/(decrease) in payable  ; in which any value decrease is negative value or to be subtracted

Change in Net Working capital of this firm = sales increasing by $1,600,000 + inventory to increase by $125,000 + accounts receivable to increase by $100,000 - accounts payable to increase by $90,000  

= $1,735,000