A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $ 1 comma 400 comma 000 $1,400,000. This in turn would cause inventory to increase by $ 175 comma 000 $175,000 , accounts receivable to increase by $ 140 comma 000 $140,000 , and accounts payable to increase by $ 60 comma 000 $60,000. What is the firm's expected change in net working capital?

Question

Business

Cloe Hines

20 May, 04:45

A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $ 1 comma 400 comma 000 $1,400,000. This in turn would cause inventory to increase by $ 175 comma 000 $175,000 , accounts receivable to increase by $ 140 comma 000 $140,000 , and accounts payable to increase by $ 60 comma 000 $60,000. What is the firm's expected change in net working capital?

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Adelaide Mitchell · Answer 1

The firm's expected change in net working capital: Net working capital increases by $255,000

Explanation:

Net working capital is calculated by using following formula:

Net working capital = Current assets - Current Liabilities

The inventory increases by $175,000 , accounts receivable increases by $140,000.

The Current assets increases by: $175,000 + $140,000 = $315,000

The accounts payable increases by $60,000, the Current Liabilities increases by $60,000

Net working capital increases by: $315,000 - $60,000 = $255,000