Wheels and More needs to maintain 8 percent of its sales in net working capital. The firm is considering a 5-year project which will increase sales from their current level of $110,000 to $146,000, $152,000, $158,000, $164,000, and $155,000 for Years 1 to 5 of the project, respectively. What amount should be included in the project analysis cash flows for net working capital for Year 3 of the project? A. $12,640

B. - $480

C. - $12,640

D. $0

E. $480

E. $480

Explanation:

For computing the included amount, first we have to find out the increase in working capital which is shown below:

Increase in working capital = Increase sales * sales percentage

For Year 1

Increase in working capital = $146,000 * 0.08

= $11,680

For Year 2

Increase in working capital = $152,000 * 0.08

= $12,160

For Year 3

Increase in working capital = $158,000 * 0.08

= $12,640

For Year 4

Increase in working capital = $164,000 * 0.08

= $13,120

For Year 5

Increase in working capital = $155,000 * 0.08

= $12,400

Now net working capital would be

Year 1 $11,680

Year 2 $12,160 $480

Year 3 $12,640 $480

Year 4 $13,120 $480

Year 5 $12,400 - $720

We deducted it from the bottom

Like $12,400 - $13,120 = - $720

$13,120 - $12,640 = $480 and so on