| | Cash flow effects of Net Working Capital Example |
| | NWC assumptions: Receivables 5% of following year sales. Inventory and Payables 10% of following variable and fixed prod'n costs. |
| | NWC will be recouped at end of project life. |
| | | | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| | Sales | | | $30,000,000 | $36,000,000 | $45,000,000 | $32,400,000 | $10,000,000 |
| | Receivables | | $1,500,000 | $1,800,000 | $2,250,000 | $1,620,000 | $500,000 |
| | Total variable and fixed prod'n costs | | | ($17,000,000) | ($22,000,000) | ($27,000,000) | ($20,000,000) | ($12,000,000) |
| | Inventory | | $1,700,000 | $2,200,000 | $2,700,000 | $2,000,000 | $1,200,000 |
| | Payables | | ($1,700,000) | ($2,200,000) | ($2,700,000) | ($2,000,000) | ($1,200,000) |
| | NWC | | $1,500,000 | $1,800,000 | $2,250,000 | $1,620,000 | $500,000 | $0 |
| | CF due to NWC | | ($1,500,000) | ($300,000) | ($450,000) | $630,000 | $1,120,000 | $500,000 |
| | Note: CF due to NWC relate to the NWC changes (additions to working capital), not balances. |
| | Students may wish to read the eText chapter 12, although it is not formally covered in the unit. |
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CashfloweffectsofNetWorkingCapitalExample.xlsx
