Six Twelve, Inc., is considering opening up a new convenience store in downtown
ID: 2695968 • Letter: S
Question
Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue of the new store is $800,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash-equivalents to revenue to be 0.03 and the ratios of receivables, inventories, and payables to revenue to be 0.05, 0.10, and 0.04 respectively, in the same industry. What is the incremental cash flow related to working capital when the store open? Enter negative sign in front of the number or put parentheses around the number. The answer to this question is negative not positive.
I need an experienced Finance person to answer tis question. Thank You
Explanation / Answer
ANSWER ash equivalents/revenue = 0.03 cash equivalents = .03*600,000 =$18,000 incremental cash flows related to working capital =$18,000
800000*0.19=152000 800000*0.03=24000 increnental cash flow related to working capital when the store is opened=$648000