Suppose that the managers of the router division of Cisco Systems are considering the development of a wireless home networking appliance, called HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection.
Cisco's receivables are 15.4% of sales and its payables are 14.5% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold (COGS) will be as follows:Year
0
1
2
3
4
Sales
$23,263
$26,283
$23,996
$8,656
COGS
$9,288
$10,744
$9,459
$3,536 The required investment in net working capital for year 0 is what

To forecast the **required investment in net working capital (NWC)**, we need to calculate the balances for **receivables** and **payables**, then determine the NWC for each year.

The formula for **NWC** is:

\[
\text{NWC} = \text{Receivables} - \text{Payables}
\]

We are given:
- Receivables = 15.4% of **Sales**  
- Payables = 14.5% of **COGS**

We will focus on **Year 0** (since you’re asking for this specific year).

### Step-by-Step Calculation

#### 1. Calculate Receivables for Year 0:
\[
\text{Receivables (Year 0)} = 15.4\% \times \text{Sales (Year 0)}
\]
\[
\text{Receivables (Year 0)} = 0.154 \times 23,263 = 3,582.50
\]

#### 2. Calculate Payables for Year 0:
\[
\text{Payables (Year 0)} = 14.5\% \times \text{COGS (Year 0)}
\]
\[
\text{Payables (Year 0)} = 0.145 \times 9,288 = 1,346.76
\]

#### 3. Calculate NWC for Year 0:
\[
\text{NWC (Year 0)} = \text{Receivables (Year 0)} - \text{Payables (Year 0)}
\]
\[
\text{NWC (Year 0)} = 3,582.50 - 1,346.76 = 2,235.74
\]

### Final Answer:
The required investment in **net working capital (NWC)** for **Year 0** is:

\[
\boxed{2,235.74}
\]

---

Would you like to see the NWC calculations for other years, or explore additional insights?

### 5 Related Questions:
1. How does NWC affect cash flow in investment projects?
2. What happens if receivables and payables ratios change over time?
3. How would Cisco optimize NWC to reduce cash constraints?
4. Why is it important to forecast NWC for project analysis?
5. How do payment terms with suppliers impact NWC?

### Tip:
To maintain a healthy NWC, companies often aim to speed up receivables collection and negotiate longer payable terms with suppliers.

Suppose that the managers of the router division of Cisco Systems are considering the development of a wireless home networking appliance, called HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection. Cisco's receivables are 15.4% of sales and its payables are 14.5% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold (COGS) will be as follows: Year 0 1 2 3 4 Sales $23,263 $26,283 $23,996 $8,656 COGS $9,288 $10,744 $9,459 $3,536 The required investment in net working capital for year 0 is what?

This solution details the calculation of the required investment in net working capital (NWC) for Cisco's HomeNet project in Year 0. Key concepts include percentage calculations applied to sales and cost of goods sold (COGS), with a step-by-step breakdown. Ideal for high school and college students studying finance or business.

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