British Motor Works is reviewing its current accounts to determine how a propose

Question

British Motor Works is reviewing its current accounts to determine how a proposed project might affect account balances. The firm estimates the project will initially require $67,000 in current assets and $32,000 in additional current liabilities. The firm also estimates the project wil require an additional $7,000 a year in current assets for each one of the four years of the project. How much net working will the firm recoup at the end of the project assuming that all net working capital can be recaptured?

Explanation / Answer

Working capital = current assets - current liabilities

Initial working capital required = 67,000 - 32,000 = 35,000

This is at the beginning of the project.

In addition, every one of the 4 years requires an additional working capital of 7,000.

So total working capital = initial working capital + yearly working capital * 4 = 35,000 + 7,000 * 4 = $ 63,000

Answer: Total working capital that can be recaptured at the end = $ 63,000

Hope this helped ! Let me know in case of any queries.

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