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24 August, 05:30

Company A estimates that it needs 30% of sales in net working capital. In year 1, sales were $1 million and in year 2, sales were $2 million. Associated with the change in net working capital from year 1 to year 2 is a cash: (A) inflow of $300,000. (B) outflow of $300,000. (C) inflow of $600,000. (D) outflow of $600,000.

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  1. 24 August, 05:37
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    (B) outflow of $300,000

    Explanation:

    The change in net working capital of the Company A shall be determined through the following mentioned equation:

    Change in net working capital=Percentage of sales in year 2-Percentage of sales in year 1

    Change in net working capital=0.30*$2,000,000-0.30*$1,000,000

    =$300,000 out flow

    So based on the above calculations, the answer shall be (B) outflow of $300,000
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