The change in net working capital when evaluating a capital budgeting decision is ________.
A) the change in fixed liabilities minus the change in fixed assets
B) the increase in current assets
C) the increase in current liabilities
D) the change in current assets minus the change in current liabilities

Question

Quizplus · Accepted Answer

The change in net working capital is calculated by subtracting the change in current liabilities from the change in current assets. It reflects the cash outlay or inflow required for current assets and current liabilities associated with the project. Option A is incorrect because it considers fixed assets and liabilities, which are not relevant for calculating the change in net working capital. Option B is only half the equation and doesn't account for changes in current liabilities. Option C is also only half the equation and doesn't account for changes in current assets.

The Change in Net Working Capital When Evaluating a Capital