Question

Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below. Balance Sheets 2018 2017 Assets Cash and equivalents $60 $45 Accounts receivable 275 300 Inventories 375 350 Total current assets $710 $695 Net plant and equipment 2,000 1,490 Total assets $2,710 $2,185 Liabilities and Equity Accounts payable $150 $85 Accruals 75 50 Notes payable 110 135 Total current liabilities $335 $270 Long-term debt 450 290 Common stock 1,225 1,225 Retained earnings 700 400 Total liabilities and equity $2,710 $2,185 Income Statements 2018 2017 Sales $2,000 $1,500 Operating costs excluding depreciation and amortization 1,250 1,000 EBITDA $750 $500 Depreciation and amortization 100 75 EBIT $650 $425 Interest 62 45 EBT $588 $380 Taxes (40%) 235 152 Net income $353 $228 Dividends paid $53 $48 Addition to retained earnings $300 $180 Shares outstanding 100 100 Price $25.00 $22.50 WACC 10.00%

The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash.

1. What is Rosnan's 2018 net operating working capital (NOWC)? $

2.What is Rosnan's 2018 net working capital (NWC)? $

Answer 1

1).

Net Operating Working Capital = Current Assets - Accounts Payable - Accurals (Notes Payable are not part of Operating working capital)

Rosnan's Net Operating Working Capital for 2018 = $710 - $150 - $75

Rosnan's Net Operating Working Capital for 2018 = $485

2).

Net Working Capital = Current Assets - Current Liabilities

Rosnan's Net Working Capital for 2018= $710 - $335

Rosnan's Net Working Capital for 2018= $375