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As noted in chapter 3 increases in cash accounts

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Unformatted text preview: lays made to meet expanded product demand. As noted in Chapter 3, increases in cash, accounts receivable, and inventories are outflows of cash, whereas increases in accounts payable and accruals are inflows of cash. The difference between the change in current assets and the change in current liabilities is the change in net working capital. Generally, current assets increase by more than current liabilities, resulting in an increased investment in net working capital. This increased investment is treated as an initial outflow.8 If the change in net working capital were negative, it would be shown as an initial inflow. The change in net working capital—regardless of whether it is an increase or a decrease—is not taxable because it merely involves a net buildup or net reduction of current accounts. Danson Company, a metal products manufacturer, is contemplating expanding its operations. Financial analysts expect that the changes in current accounts summarized in Table 8.4 will occur and wi...
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