Question

In: Finance

t beginning of this year, XYZ Company has a machine worth 1000k, cash 30k, account receivable...

t beginning of this year, XYZ Company has a machine worth 1000k, cash 30k, account receivable 200k, inventory 100k, account payable 50k, and notes payable 80k. During this year, XYZ had sold 75k of inventory, which brought in 120k in revenue (with half cash and half credit). In addition, the company also paid down 37.5% of the notes payable. What is the change of NWC this year?

Solutions

Expert Solution

Changes in Net Working Capital = Current Working Capital - Previous Working Capital

Working capital = Current Asset - Current Liabilites

Beginning of the Year During this year
Fix Asset
Machinery 1000 1000
Fix Asset 1000 1000
cash 30 60
Receivable 200 260
Inventory 100 25
Current Asset 330 345
Account Payable 50 50
Notes Payables 80 50
Current Liabilites 130 100
Working Capital 200 245
Changes in NWC 45
Paid 37.5% of Notes Payables 80 * 37.5% = 30K

=> 75K Inventory was sold from 100K so remaining 25K was ending balance for the year.

=> 120K revenue from sale of Inventory amount 60K added into cash + 60K added into Receivable (because of credit sale)

=> Company pay to Notes payable amount 30K (37.5% from 80K), so net Notes payment 50K (80K-30K)

=> Ending cash balance = 60K (30K + 60K Inventory sale - 30K Notes payable)

Begining Working capital = 200 ( 330 - 130)

Ending Working capital = 245 ( 345 - 100)

Changes in Net Working Capital = Current Working Capital - Previous Working Capital

= 245 - 200 = 45K

Changes in Net Working Capital (NWC) = 45K


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