Home Furnishings Express is expanding its product offerings to reach a wider ran

Question

Home Furnishings Express is expanding its product offerings to reach a wider range of customers. The expansion project includes increasing the floor inventory by $430,000 and increasing its debt to suppliers by 70 percent of that amount (i.e. 70% of $430,000). The company will also spend $450,000 for a building contractor to expand the size of its showroom. As part of the expansion plan, the company will be offering credit to its customers and thus expects accounts receivable to rise by $27,000. For the project analysis, what amount should be used as the initial cash flow for net working capital?

-$39,000

-$219,000

-$70,000

-$391,000

-$156,000

Explanation / Answer

Ans -$156,000

Estimate for Working Capital Details Amount Increase in Inventory -4,30,000.00 Less Credit From Supplier 430,000*.70    3,01,000.00 Increase in Account receivable      -27,000.00 Additional Financing Working Capital required -1,56,000.00

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