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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