I am provided this information: Your venture would require a capital investment

Question

I am provided this information: Your venture would require a capital investment of $15,800,000 in equipment, plus $1,200,000 in installation costs. The venture would also result in an increase in accounts receivable and inventories of $1,400,000. At the end of the six-year life span of the venture, you estimate that the equipment could be sold at a $3,800,000 salvage value. Your venture would incur fixed costs of $950,000 per year, while the variable costs of the venture would equal 35 percent of revenues. I understand that Net Working Capital is Accounts Receivable - Accounts Payable. Would the Net Working Capital just be 1,400,000 since there are not any Accounts Payable listed?

Explanation / Answer

Yes, the Net Working Capital would just be 1,400,000 as no further data about generation of income is given. So, the working capital will only be the in had assets which is an increase in accounts receivable and inventories worth $1,400,000.

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