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Grady-White Boats, Inc. is considering a project that will require additional inventory of $128,000 and will also increase accounts payable by $45,000 as suppliers are willing to finance part of these purchases. Accounts receivable are currently $80,000 and are expected to increase by 10% if this project is accepted. What is the incremental change to net working capital as a result of accepting this project?

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Answer:

An increase of $91,000

Explanation:

Working capital = current asset (Cash+Accounts receivable+inventory) - current liabilities (accounts payable + accruals)

Based on the data given, additional inventory and the 10% of accounts receivable( 80,000 x 10% = $8,000) will increase the working capital while increase in accounts payable will decrease the working capital.

Inventory $128,000

Accounts receivable 8,000

Accounts payable (45,000)

—————

Net effect $91,000

Therefore, the total effect of the above-mentioned transactions is an increment of $91,000 to the working capital.