question archive For project A, the cash flow effect from the change in net working capital is expected to be $1,200 at time 2 and the level of net working capital is expected to be $800 at time 2
For project A, the cash flow effect from the change in net working capital is expected to be $1,200 at time 2 and the level of net working capital is expected to be $800 at time 2
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For project A, the cash flow effect from the change in net working capital is expected to be $1,200 at time 2 and the level of net working capital is expected to be $800 at time 2. What is the level of current liabilities for project A expected to be at time 1 if the level of current assets for project A is expected to be $3,100 at time 1?
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Answer:
| Change in Net working Capital is $1200 at time 2. |
| As the Cash flow effect from Change in Net working Capital |
| is shown as positive $1200 , we can assume that the net |
| Working Capital in time 2 has decreased by $1200 as compared to |
| time 1. |
| Net Working Capial at time 2=$800 |
| So Net working capital at time 1 =$800+$1200=$2000 |
| Level of Current Asset at time 1 =$3100 |
| As we know net working Capital =Current Asset-Current Liabilities |
| Net working capital time 1=$2000 |
| So, $2,000=$3,100-Current Liabilities time 1. |
| So Current Liabilities time 1=$3,100-$2,000=$1,100 |
| Level of current liabilities for project A expected at time 1=$1,100 |
