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 11 1 Cash 2 Accounts receivable 3 Inventory 4 Accounts payable

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

​$nothing

million. ​(Round to the nearest​ integer.)

Answer 1

Working capital = Current Assets - Current Liabilities
=cash + accounts receivables + inventory - accounts payable
Change in working capital = Working capital this year - working capital last year
	Year 1	Year 2	Year 3	Year 4	Year 5
Cash	7	11	15	15	15
Accounts receivables	21	25	24	25	26
Inventory	4	7	12	14	16
Accounts payable	18	22	23	26	32
Working Capital	14	21	28	28	25
Change in working capital (in million)	14	7	7	0	-3
Note: Negative amount denotes release