Net Working Capital Investment - PLEASE HELP

To solve this and get it over with, can someone please help. I understand how to calculate CFO…

But for Capital Budgeting…

The Outlay you add NWCInv (Net working capital investment).

In the question, it says: At the beginning of the project, a required increase in current assets of $200,000 and a required increase in current liabilities of $125,000.

Would the initial current outlay be +75,000 or -75,000?

Whatever this amount is, will also show up in the TNOCF.

Can you please go through your thinking? Increase in current assets is a subtraction, and increase in current liabilities is a addiiton…is how i thought of it?

Also, how about if the question says, at the beginning of a the project, a decrease in current assets of $200,000 and a increase in current liabilities of $125,000. Or a decrease in both?

Thank you!.

NWC.inv = change in non-cash current assets - change in non debt current liabilities

+200,000-125,000= +75,000

It’s the opposite. Increase in current assets is an addition, and increase in current liabilities is a subtraction

NWC.inv = change in non-cash current assets - change in non debt current liabilities

NWC.inv = -200,000 - 125,000= -325,000

In this case, both current assets and current liabilities are providing you money (financing) rather than taking money from you.

Just be careful with your signs… Say you have to invest 300,000 in a fixed asset. This is a 300,000 outflow. The way you enter it into your calculator for CF at time 0 is - 300,000, right? Let’s say you also have a net increase in working capital (change in current assets > change in current liabilities), So, your current assets increased by 200,000 (this is a USE of cash) and your current liabilities increased by 125,000 (this is a source of cash). You have a net use of cash of 200,000 - 125,000 = 75,000. This is a use of cash, therefore it’s also a cashoutflow in addition to your initial plant investment of 300,000. Total cash outflow at time 0 on your calculator would then be -300,000 - 75,000 = -375,000.

If it were the other way around and your CL went up by 200,000 and CA went up by 125000, then it would be considered a source of cash and your net cash outflow for time 0 would be -300,000 + 75,000 = -225,000.

In any event, the investment in (or reduction of) working capital is expected to reverse in the final year of the project.