Purchase Solution

Impact of changes in Working capital on Project cash flow

Not what you're looking for?

Ask Custom Question

How do changes in working capital affect project cash flows?

Purchase this Solution
Solution Summary

The answer describes meaning working capital, gross working capital,net working capital, components of working capital and also clearly explains the impact of changes in working capital in the project cash flow.

Solution Preview

Working capital and project cash flow.

How do changes in working capital affect project cash flows?

Working capital:

There are two terms denoting the working capital:
1. Gross working capital and
2. Net working capital.

Gross working capital means the amount invested in the current assets of the company.Net working capital means the difference between the current assets and current liabilities. If the current assets are more than the current liabilities, then it is positive working capital. Otherwise, it is negative working capital. Working capital is the measure of company's solvency, its ability to pay its suppliers without any delay.

The difference between the working capital of two reporting periods is called the change in working capital.
Current assets comprises of

1. Accounts receivable
2. Inventory
3. Cash
4. Marketable securities

Current liabilities include:
1. Bills payable
2. Sundry creditors
3. Short term loan
4. Bank overdraft.

Example: If the project's requirement of working capital is ...

Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Basics of corporate finance

These questions will test you on your knowledge of finance.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • Financial management practice and documentation

    Since, in this case we do not have data on levels of working capital, it is not feasible to analyze the impact of varying the levels of working capital on asset levels.

  • Free cash flow

    capital = -7,000 - change in capital spending = 0 Free cash flow = 900,000-306,000+300,000-7,000=$887,000 The solution explains how to calculate the free cash flow

  • Project evaluation

    If the sales of existing products change due to the project, that has to be considered. 3. Changes in working capital - If working capital changes due to project, that has to be considered 4.

  • Value of Cash Flow Declines

    Further, it is assumed that the investment in working capital is recovered after three years at the end of the project. What is the impact of working capitol in computing the NPV?

  • Solving Various Capital Budgeting Problems

    Changes in net working capital refer to changes in current assets and current liabilities, not to changes in long-term assets and liabilities. Therefore, changes in net working capital should not be considered in a capital budgeting analysis. d.

  • NPV, IRR, payback, year 1 cash flow, opportunity cost

    Changes in net working capital should not be reflected in a capital budgeting cash flow analysis because capital budgeting relates to fixed assets, not working capital. A) True B) False Please see the attached Excel 97-2003 spreadsheet.

  • Sensitivity and Scenario Analysis

    Scenario analysis measures the cash flow and value of asset under various scenarios in future (economicstimes, 2017). Outcomes of scenario depend on the variability in cash inflow, cash outflow and cost of capital.

  • Valuation Capital Budgeting

    The terminal year cash flow is After tax salvage value 45,202 (65,000-19,798) Recovery of working capital 5,500 Total cash flow 50,702 e. We calculate the NPV of the project.

  • The Impact of Changes in Working Capital to Cash Flow

    404966 The Impact of Changes in Working Capital to Cash Flow Axtel retired stock for $1,000,000 and paid a dividend of $1,727,000. Depreciation for the year was $1,166,000. Construct a Statement of Cash Flows for Axtel for 2001.

View More Related Solutions