Home Furnishings is expanding its product offerings to reach a wider range of cu

Question

Home Furnishings is expanding its product offerings to reach a wider range of customers. The expansion project includes increasing floor inventory by $656,000 and increasing its debt to suppliers by 85 percent of that amount. The company will also spend $1,110,000 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 $275,000. For the project analysis, what amount should be used as the initial cash flow for net working capital? Please show all calculations and formulas

Explanation / Answer

Net working capital = Increase in inventory + Increase in debtor - Increase in creditor

= $656,000 + $275,000 - 85% * $656,000

= $373,400

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.