how is it solved please provide instruction and formulas? 7. Change in net working capital calculation Samuels
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how is it solved please provide instruction and formulas?
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7. Change in net working capital calculation Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $917,000 and total current liabilities of $645,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Accruals Account Marketable securities Inventories Accounts payable Change +$43,000 0 - 20,000 + 89,000 Notes payable Accounts receivable Cash 0 +150,000 +16,000 a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement action. 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 relevant cash flows? Explain. Click the icon to see the Worked Solution (Formula Solution). Review Only a. The change in net working capital is $ 14000 (Round to the nearest dollar.) b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure. (Select from the drop-down menus.) Analysis of the purchase of a new machine reveals an increase in net working capital. This increase should be treated as an initial outlay and is a cost of acquiring the new machine. c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain. (Select from the drop-down menus.) Yes, in computing the terminal cash flow, the net working capital increase should be reversed. 7. Change in net working capital calculation Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $917,000 and total current liabilities of $645,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Accruals Account Marketable securities Inventories Accounts payable Change +$43,000 0 - 20,000 + 89,000 Notes payable Accounts receivable Cash 0 +150,000 +16,000 a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement action. 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 relevant cash flows? Explain. Click the icon to see the Worked Solution (Formula Solution). Review Only a. The change in net working capital is $ 14000 (Round to the nearest dollar.) b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure. (Select from the drop-down menus.) Analysis of the purchase of a new machine reveals an increase in net working capital. This increase should be treated as an initial outlay and is a cost of acquiring the new machine. c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain. (Select from the drop-down menus.) Yes, in computing the terminal cash flow, the net working capital increase should be reversed.
Expert Answer:
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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