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Harrington Inc. is introducing a new product in its line of household appliances. Household products generally have 10 year life cycles and are viewed as capital budgeting projects over that period. Harrington's working capital forecast for the project is as follows: $1.0 million will be invested in inventory before the project begins. Inventory will increase by $100,000 in each of the first six years. Accounts receivable will increase by $150,000 in each of the first four years and by $100,000 in each of the next two years. Accounts payable will increase by $110,000 in each of the first six years. During the last four years, the balance in each of these accounts will return to zero in foru equal increments. Accruals are negligible.Calculate the cash flows associated with working capital from the initial outlay to the end of the project's life.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M9950653

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