Question

The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.5 million and net plant and equipment equals $2.2 million. It has notes payable of $140,000, long-term debt of $752,000, and total common equity of $1.55 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

What is the firm's net operating working capital?
$  

What is the monetary difference between your answers to part f and g?
$  

Answer 1

Firm's net working capital = Current assets - Current Liabilities
Current assets = Total assets - net plant and equipment = $2.5 million - $2.2 million = $0.3 million i.e.$3,00,000
(Accounts Payable + Accruals) = Total assets - (Notes payable + Long term debt + total common equity)
(Accounts Payable + Accruals) = $25,00,000 - ($140000 + $752000 + $1550000) = $58,000
Current liabilities = (Accounts Payable + Accruals) + Notes Payable = $58000 + $140000 = $1,98,000
Firm's net working capital = $3,00,000 - $1,98,000 = $1,02,000