Calculating changes in net operating working capital: Duncan Motors is introduci

Question

Calculating changes in net operating working capital: Duncan Motors is introducing a new product and has an expected change in net operating income of $310,000. Duncan Motors has a 31 percent marginal tax rate. This project will also produce $48,000 of depreciation per year. In addition, this project will cause the following changes in year 1:

Accounts Receivable: $36,000 (without project), $17,000 (with project)
Inventory: 23,000 (without Project), 38,000 (with project)
Accounts Payabble: 55,000 (without Project), 85,000 (with project)

Explanation / Answer

New Cash = (310000 - ((310000 - 48000) * 31/100) ) +48000 = 276780

Therefore, Without Project Working Capital = 0+36000+ 23000 -55000 = 4000

With Project = 276780 + 17000 + 38000 - 85000 = 246780

Thanks

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