Redds Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $911,000 and total current liabilities of $646,000. As a result of the proposedreplacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted.

Account

Change

Accruals

+$38,000

Marketable securities

0

Inventories

15,000

Accounts payable

+87,000

Notes payable

0

Accounts receivable

+155,000

Cash

+11,000

1. Using the informationgiven, calculate any change in net working capital that is expected to result from the proposed replacement action.

2. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure.

3. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cashflows? Explain.

All of the information is there.