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12 June, 11:04

A new project would require an immediate increase in raw materials in the amount $6,000. The firm expects that accounts payable will automatically increase $2,000. How much must the firm expect its investment in net working capital to increase if they accept this project

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  1. 12 June, 14:07
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    The project will increase the net working capital of the firm by $4000

    Explanation:

    Net working capital measure how fast a company can convert its asset to cash, the networking capital can be obtained with the expression below;

    net working capital (NWC) = current assets - current liabilities

    Current asset = Increase in raw materials = $6,000

    Current liabilities = accounts payable increase = $2,000

    NWC = Increase in raw materials-increase in accounts payable

    =$6,000 - $2,000

    =$4000

    Therefore this project will increase the net working capital of the firm by $4000
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