A project proposal for a new product will require a buildup of $50,000 of inventory in year 0 before sales are started. Associated with this, accounts payable will also increase by $20,000 in year 0. Both of these will stay constant at these amounts in years 1-3 and beyond. After sales start in year 1, accounts receivable is expected to increase to $30,000 in year 1, to $40,000 in year 2, and to $50,000 in year 3 and continue at $50,000 into the future. Assume that no other working capital items are affected.
What will be the change in working capital for each year (0-3)?
What will be the change in cash flow from working capital in years 0-3?