#19) For project A, the cash flow effect from the change in net working capital

Question

#19) For project A, the cash flow effect from the change in net working capital is expected to be -300 dollars at time 2 and the level of net working capital is expected to be 1,300 dollars at time 2. What is the level of current liabilities for project A expected to be at time 1 if the level of current assets for project A is expected to be 8,900 dollars at time 1?

#20) For project A, the cash flow effect from the change in net working capital is expected to be 300 dollars at time 2 and the level of net working capital is expected to be 1,900 dollars at time 2. What is the level of current assets for project A expected to be at time 1 if the level of current liabilities for project A is expected to be 4,600 dollars at time 1?

Explanation / Answer

1

Given, Net working capital investment=300

So, Increase in Current Assets-Increase in Current Liabilities=300

=>Current Assets2-Current Assets1-Current Liabilities2+Current Liabilities1=300..............1)

Given, Level of net working capital=Current assets2-currrent laibilites2=1300.....................2)

Hence from 1) & 2) -Current Assets1+Current Liabilities1=300-1300=-1000

Given, Current Assets1=8900

So, Current Liabilities1=-1000+8900=7900

2

Given, Net working capital investment=-300 since it is an outflow

So, Increase in Current Assets-Increase in Current Liabilities=-300

=>Current Assets2-Current Assets1-Current Liabilities2+Current Liabilities1=-300..............1)

Given, Level of net working capital=Current assets2-currrent laibilites2=1900.....................2)

Hence from 1) & 2) -Current Assets1+Current Liabilities1=-300-1900=-2200

Given, Current Assets1=4600

So, Current Liabilities1=-2200+4600=2400

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