British Motor Works Is Reviewing Its Current Accounts to Determine

question 68

Multiple Choice

British Motor Works is reviewing its current accounts to determine how a proposed project might affect the account balances.The firm estimates the project will initially require $67,000 in additional current assets and $32,000 in additional current liabilities.The firm also estimates the project will require an additional $7,000 a year in current assets for each one of the four years of the project.How much net working capital will the firm recoup at the end of the project assuming that all net working capital can be recaptured?

• A)-$85,000
• B)$25,000
• C)$63,000
• D)$68,000
• E)$85,000

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Definitions:

Accounts Payable

A liability to a creditor, usually for purchases of goods and services.

Net Working Capital

Net Working Capital is a financial metric that measures a company's ability to meet its short-term obligations with its short-term assets.

Current Assets

Assets that are expected to be converted into cash or used up within one year or one business cycle, whichever is longer, such as cash, inventory, and receivables.

Cash Flow To Creditors

The amount of cash a company pays to its creditors and bondholders, indicating the flow of cash intended to cover debts.