Dollar Diamond Is Considering a Project Which Will Require Additional

question 300

Multiple Choice

Dollar Diamond is considering a project which will require additional inventory of $134,000 and will also increase accounts payable by $37,000 as suppliers are willing to finance part of these
Purchases. Accounts receivable are currently $100,000 and are expected to increase by 8% if this
Project is accepted. What is the initial project cash flow related to net working capital?

• A) -$105,000
• B) -$97,000
• C) -$89,000
• D) $8,560
• E) $94,720

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account that reduces the total receivables reported to reflect the amount that is expected to be uncollectible.

Bad Debt Expense

Bad debt expense is the cost associated with accounts receivable that a company cannot collect.

Allowance Method

An accounting technique to estimate and record bad debts expense, acknowledging that a certain percentage of accounts receivable may not be collectible.

Aging Receivables

A method of categorizing accounts receivable based on how long they have been outstanding to assess and manage credit risk.