Question

Royal Mount Games would like to invest in a division to develop software for video games. To evaluate this​ decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates​ (in millions of​ dollars):  ​(To copy the table below and use in​ Excel, click on icon in the upper right corner of​ table.)

		Year 1	Year 2	Year 3	Year 4	Year 5
1	Cash	44	1010	1616	1616	1414
2	Accounts receivable	2222	2222	2424	2222	2626
3	Inventory	66	77	1010	1313	1313
4	Accounts payable	1818	2222	2424	2525	3434

Assuming that Royal Mount currently does not have any working capital invested in this​ division, calculate the cash flows associated with changes in working capital for the first five years of this investment. ​(Enter increases as negative numbers since they are uses of​ cash.)

The cash flow associated with the change in working capital for year 1 is

​$

million. ​(Round to the nearest​ integer.)The cash flow associated with the change in working capital for year 2 is

​$

million.  ​(Round to the nearest​ integer.)The cash flow associated with the change in working capital for year 3 is

​$

million. ​ (Round to the nearest​ integer.)The cash flow associated with the change in working capital for year 4 is

​$

million. ​ (Round to the nearest​ integer.)The cash flow associated with the change in working capital for year 5 is

​$

million.

Answer 1

Working Capital = Current Assets - Current Liabilities
i.e. Cash + Accounts receivables + Inventory - Accounts payables
Change in Working capital = Working capital in current year - Working capital in prior year
		Year 1	Year 2	Year 3	Year 4	Year 5
1	Cash	44	1010	1616	1616	1414
2	Accounts receivable	2222	2222	2424	2222	2626
3	Inventory	66	77	1010	1313	1313
4	Accounts payable	1818	2222	2424	2525	3434
	Working Capital	514	1087	2626	2626	1919
	Change in Working Capital	514	573	1539	0	-707
Note:Negative amount denoted release of working capital