Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $927,000 and total current liabilities of $648,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Account Change Accruals +$43,000 Marketable securities 0 Inventories −13,000 Accounts payable +86,000 Notes payable 0 Accounts receivable +151,000 Cash +12,000 a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement action. b. Explain why a change in these current accounts would be relevant in determining the initial cash flow for the proposed capital expenditure. c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain.
Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $927,000 and total current liabilities of $648,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted. Account Change Accruals +$43,000 Marketable securities 0 Inventories −13,000 Accounts payable +86,000 Notes payable 0 Accounts receivable +151,000 Cash +12,000 a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement action. b. Explain why a change in these current accounts would be relevant in determining the initial cash flow for the proposed capital expenditure. c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of
$927,000 and total current liabilities of $648,000.
As a result of the proposed replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted.|
Account
|
Change
|
|
Accruals
|
+$43,000
|
|
Marketable securities
|
0
|
|
Inventories
|
−13,000
|
|
Accounts payable
|
+86,000
|
|
Notes payable
|
0
|
|
Accounts receivable
|
+151,000
|
|
Cash
|
+12,000
|
a. Using the information given, calculate any change in net working capital that is expected to result from the proposed replacement action.
b. Explain why a change in these current accounts would be relevant in determining the initial cash flow for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cash flows? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education