Home Furnishings is expanding its product offerings to reach a wider range of customers. The expansion project includes increasing floor inventory by $486,000 and increasing its debt to suppliers by 90 percent of that amount. The company will also spend $947,000 to expand the size of its showroom. As part of the expansion plan, the company expects accounts receivable to rise by $205,000. For the project analysis, what amount should be used as the initial cash flow for net working capital

Respuesta :

Answer:

$253,600

Explanation:

The computation of Initial cash flow for net working capital is shown below:-

Initial cash flow for net working capital = Increase in floor inventory as reduced by increase in debt to supplier + Increase in Account receivables

= $486,000 - 90% + $205,000

= $48,900 + $205,000

= $253,600

So, for computing the Initial cash flow for net working capital we simply applied the above formula.