Company A estimates that it needs 30% of sales in net working capital. In year 1, sales were $1 million and in year 2, sales were $2 million. Associated with the change in net working capital from year 1 to year 2 is a cash: inflow of $300,000. outflow of $300,000. inflow of $600,000. outflow of $600,000.

There is an outflow of $300000

Explanation:

The net working capital is the net value of capital available to finance day to day operations of the business. It is calculated as current assets less current liabilities.

The Change in net working capital can be calculated by deducting the net working capital for the previous year from the net working capital for the current year.

The net working capital in year 1 was = 1m * 0.3 = $300000

The net working capital in year 2 was = 2m * 0.3 = $600000

The change in net working capital is = 600000 - 300000 = $300000

An increase in net working capital means more cash is tied up in inventory, accounts receivables and other assets. Thus, there is a cash outflow of $300000

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