Question

Change in net working capital calculation MSF Manufacturing is considering the purchase of a new machine to improve its production efficiency. The company has total current assets of $865,000 and total current liabilities of $673,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Account Change Cash +$\ 43,500 Inventories -$\ 69,000 Accounts receivable +$\ 378,000 Accounts payable 0 Notes payable +$\ 230,000 Accruals +$\ 38,000 Marketable securities 0 a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement plan. b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure. c. Would the change in net working capital enter into any of the other cash flow components that make up the project's relevant cash flows? Explain.

          Change in net working capital calculation MSF Manufacturing is considering the
purchase of a new machine to improve its production efficiency. The company has
total current assets of $865,000 and total current liabilities of $673,000. As a result
of the proposed replacement, the following changes are anticipated in the levels of
the current asset and current liability accounts noted.
Account
Change
Cash
+$\ 43,500
Inventories
-$\ 69,000
Accounts receivable
+$\ 378,000
Accounts payable
0
Notes payable
+$\ 230,000
Accruals
+$\ 38,000
Marketable securities
0
a. Using the information given, calculate any change in net working capital that is
expected to result from the proposed replacement plan.
b. Explain why a change in these current accounts would be relevant in determining
the initial investment for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow
components that make up the project's relevant cash flows? Explain.

Change in net working capital calculation MSF Manufacturing is considering the
purchase of a new machine to improve its production efficiency. The company has
total current assets of 865,000 and total current liabilities of673,000. As a result
of the proposed replacement, the following changes are anticipated in the levels of
the current asset and current liability accounts noted.
Account
Change
Cash
+43,500
Inventories
- 69,000
Accounts receivable
+378,000
Accounts payable
0
Notes payable
+ 230,000
Accruals
+38,000
Marketable securities
0
a. Using the information given, calculate any change in net working capital that is
expected to result from the proposed replacement plan.
b. Explain why a change in these current accounts would be relevant in determining
the initial investment for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow
components that make up the project's relevant cash flows? Explain.

Added by Timothy G.

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