Let's solve the problem step by step as requested. --- **Step : Calculate Net Capital (NWC) for Each** **Formula Net Working (NWC) = Cash + Accounts Receivable + Inventory - Accounts Payable Let's calculate NWC for each year: | Year | Cash | A/R | Inventory | A/P | N Calculation |WC | |------|------|-----|-----------|-----|--------------------------------|-----| | 1 | 7 | 21 | 4 | 16 | 7 + 21 + 4 - 16 | 16 | | 2 | 11 | 22 | 6 | 20 | 11 + 22 + 6 - 20 | 19 | | 3 | 15 | 26 | 14 | 23 | 15 + 26 + 14 - 23 | 32 | | 4 | 14 | 25 | 14 | 27 | 14 + 25 + 14 - 27 | 26 | | 5 | 14 | 25 | 15 | 33 | 14 + 25 + 15 - 33 | 21 | **Explanation:** This step determines the net working capital required at the end of each year using the provided formula. This is crucial for identifying how much cash the business needs to tie up each year to fund its operations. --- ## **Step 2: Calculate the Cash Flow from Changes in NWC** **Formula:** Cash Flow (CF) from change in NWC for year *n* = NWC\(_n\) - NWC\(_{n-1}\) - For Year 1: Assume initial NWC (Year ) = | Year | NWC | Change in NWC (CF) | |------|-----|--------------------| | 1 | 16 | 16 - = **16** | | 2 | 19 | 19 - 16 = **3** | | 3 | 32 | 32 - 19 = **13** | | 4 | 26 | 26 - 32 = **-6** | | 5 | 21 | 21 - 26 = **-5** | **Explanation:** This step calculates the annual cash flow impact due to changes in net working capital. A positive number means the company needs to invest more cash (an outflow), while a negative number means the company recovers cash (an inflow). --- ## **Final Answers: Cash Flows Associated with Changes in NWC** - **Year 1:** $16 million (outflow) - **Year 2:** $3 million (outflow) - **Year 3:** $13 million (outflow) - **Year 4:** **–$6 million** (inflow) - **Year 5:** **–$5 million** (inflow) > **Outflows are positive; inflows (recoveries) are negative as per the instructions.**