(Part I) The Farmer Corporation is considering investing in a new manufacturing machine that has an estimated life of five years. The cost of the machine is $40,000 and the machine will be depreciated straight line over its five-year life to a residual value of $0. The manufacturing machine will result in sales of $50,000 in year 1. Sales are estimated to grow by 6% each year. It is estimated that the Farmer Corporation needs to hold 5% of its annual sales in cash, 10% of its annual sales in accounts receivable, 15% of its annual sales in inventory, and 20% of its annual sales in accounts payable. What is the required net working capital in the first year for this project?

Multiple Choice

$5,000.

$10,000.

$2,500.

$0.