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Wheels and More needs to maintain 8 percent of its sales in net working capital. The firm is considering a 5-year project which will increase sales from their current level of $110,000 to $146,000, $152,000, $158,000, $164,000, and $155,000 for Years 1 to 5 of the project, respectively. What amount should be included in the project analysis cash flows for net working capital for Year 3 of the project? A. $12,640

B. - $480

C. - $12,640

D. $0

E. $480

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Answers (1)
  1. Today, 18:53
    0
    E. $480

    Explanation:

    For computing the included amount, first we have to find out the increase in working capital which is shown below:

    Increase in working capital = Increase sales * sales percentage

    For Year 1

    Increase in working capital = $146,000 * 0.08

    = $11,680

    For Year 2

    Increase in working capital = $152,000 * 0.08

    = $12,160

    For Year 3

    Increase in working capital = $158,000 * 0.08

    = $12,640

    For Year 4

    Increase in working capital = $164,000 * 0.08

    = $13,120

    For Year 5

    Increase in working capital = $155,000 * 0.08

    = $12,400

    Now net working capital would be

    Year 1 $11,680

    Year 2 $12,160 $480

    Year 3 $12,640 $480

    Year 4 $13,120 $480

    Year 5 $12,400 - $720

    We deducted it from the bottom

    Like $12,400 - $13,120 = - $720

    $13,120 - $12,640 = $480 and so on
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