Change in net working capital calculation Samuels Manufacturing is considering t
ID: 2621247 • Letter: C
Question
Change in net working capital calculation Samuels Manufacturing is considering the purchase of a new machine to replace one it belleves is obsolete. The firm has total current assets of $911,000 and total current liabilities of $633.000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Account Change $41,000 Accruals Marketable securities Inventories Accounts payable Notes payable Accounts receivable Cash -19,000 +93,000 149.000 13,000Explanation / Answer
(a) Current Assts change:
Cash = +13,000
Marketable securities = 0
Inventory = -19,000
Accounts receivable = + 149,000
Net Current Assets (Change)= + 143,000
Net current assets =911,00 +143,000 = 1,054,000
Current liabilties change :
Accruals = +41,000
Accounts payable = + 93,000
Notes payable = 0
Net Current liabilties = 134,000
Total current liabilties = 633,000 + 134,000 = 767,000
Change in Working Capital = Change Current assets - Change Current liabilties = 1,054,000 -767,000 = 287,000
(b) Analysis of the purchase of a new machine reveals an increase in net working capital. This increase should be treated as an initial outlay and is a cost of acquirinbg the new machine
(c) Yes, in ncomputing the terminal cash flow, the net working capital increase should be reversed
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