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12 January, 18:31

Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is $700,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash-equivalents to revenue to be 0.03 and the ratios of receivables, inventories, and payables to revenue to be 0.05, 0.10, and 0.04, respectively, in the same industry.

Required:

What is the expected incremental cash flow related to working capital when the store is opened? (Enter negative amount using either a negative sign preceding the number e. g. - 45)

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Answers (1)
  1. 12 January, 18:50
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    The expected incremental cash flow related to working capital when the store is opened is $98,000.

    Explanation:

    Incremental cash required = $700,000 * (0.03 + 0.05 + 0.10 - 0.04)

    = $700,000*0.14

    = $98,000

    Therefore, The expected incremental cash flow related to working capital when the store is opened is $98,000.
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