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The Herb Salter Corporation is considering a plant expansion that will increase its sales and net income. The following data represent management's estimate of the impact the proposal will have on the company:
The effect of the plant expansion on Salter's networking capital will be a (n)
Suggested Answer: B
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Net working capital is defined as current assets minus current liabilities; Net working capital is calculated as follows:
Networking capital decreases by $10,000 from the current $540,000 to $530,000 under the proposal.
29 comments · newest first
DY
Dyan
10 months ago
Not sure about that $240,000... seems a bit high to me.
CA
Carylon
10 months ago
Totally agree with the $240,000 increase!
ME
Meaghan
10 months ago
Wait, why would it only be a $10,000 increase? That seems low.
TR
Troy
10 months ago
I think $230,000 makes more sense.
JA
Jacob
10 months ago
Looks like an increase of $240,000 is the best option!
TE
Terrilyn
11 months ago
I vaguely recall that an increase in net income might correlate with an increase in working capital, but I can't remember the specifics. I hope I can figure it out during the exam!
BU
Bulah
11 months ago
I’m a bit uncertain about the impact on networking capital. Does it always increase with expansion? I thought it could also decrease if they streamline operations.
CH
Cheryl
11 months ago
This question seems similar to one we practiced where we calculated changes in working capital. I think an increase of $240,000 could make sense if they need more inventory.
BR
Brande
11 months ago
I remember we discussed how an increase in sales usually leads to a rise in working capital, but I'm not sure about the exact numbers here.
PA
Paul
12 months ago
This one's tricky. I'm not entirely sure how the plant expansion will impact working capital. I'll need to review my notes and think it through step-by-step.
EL
Elise
12 months ago
I've got a good strategy for this. I'll calculate the change in working capital by looking at the changes in current assets and current liabilities, then select the corresponding answer choice.
LE
Leonora
12 months ago
Okay, let's see. The question is asking about the effect on working capital, not net income. I'll need to focus on the changes in current assets and current liabilities to determine the answer.
DE
Denise
1 year ago
Hmm, I'm a bit unsure about this one. I'll need to think through the relationship between working capital and net income to figure out the right answer.
RO
Roslyn
1 year ago
This one seems pretty straightforward. I'll need to look at the changes in working capital to determine the impact on net income.
DA
Dana
1 year ago
Networking capital? More like 'not working' capital, am I right? Option C is the way to go!
AR
Arlene
1 year ago
I'm not sure, but I think the answer might be C) Increase of $230,000.
AL
Alishia
1 year ago
Increase of $10,000? That's just pocket change for a plant expansion. Of course, it's option C all the way!
FI
Fidelia
1 year ago
I agree with Jesse, because a plant expansion usually requires more working capital.
BE
Bernadine
1 year ago
I'm pretty sure the networking capital will increase, not decrease. Option C it is!
AL
Alesia
1 year ago
Let's go with Option C then. It's the most likely outcome of the plant expansion.
CO
Coral
1 year ago
I'm leaning towards Option C too. It makes sense that the plant expansion would result in a higher networking capital.
VA
Valentine
1 year ago
I agree, the plant expansion should lead to an increase in networking capital. Option C is the most logical.
IS
Isaiah
1 year ago
I think the networking capital will increase as well. Option C seems like the best choice.
DE
Detra
1 year ago
Hmm, a decrease of $10,000 in networking capital? That doesn't sound right, especially with the projected increase in sales and net income. I'll go with option C.
JE
Jesse
1 year ago
I think the answer is A) Increase of $240,000.
AN
Annmarie
1 year ago
If the plant expansion increases sales and net income, it seems logical that it would also increase the company's networking capital. I'm going with option C.
YA
Yasuko
1 year ago
I'm leaning towards option A, a $240,000 increase seems like a good possibility.
DA
Daniela
1 year ago
I think option C makes sense, it shows a significant increase in networking capital.
TU
Tu
1 year ago
I agree, if the plant expansion is successful, it should boost networking capital.