Question

In: Finance

BALANCE SHEETS: Assets:                         Cash             &nbs

BALANCE SHEETS:

Assets:

                        Cash                                        120,000                       160,000

                        Accounts Receivable               520,000                       620,000

                        Inventory                                305,000                       290,000

                        Fixed Assets, net                    410,000                       510,000

                        Total Assets                           1,355,000                    1,580,000

Liabilities and Equity:

                        Accounts Payable                   350,000                       $375,000

                        Long-term Debt                      500,000                       625,000

                        Common Stock                       50,000                         75,000

                        Retained Earnings                   455,000                       505,000

                        Total Liabilities and Equity    1,355,000                    1,580,000

INCOME STATEMENT:

            Revenue                                                                                  3,500,000

            Cost of Goods Sold                                                                2,275,000

            General and Administrative                                                    515,000

            Depreciation Expense                                                             120,000

            Earnings Before Interest and Taxes                                        590,000

            Interest Expense                                                                     40,000

            Pretax Net Income                                                                  550,000

            Income Taxes                                                                          167,000

            Net Income                                                                             383,000

            

  1. What was Gannon’s investment in net working capital for 2017?

Solutions

Expert Solution

Formula to calculate investment in net working capital
Investment in net working capital = Net working capital of 2017 - Net working capital of 2016
Formula to calculate net working capital
Net working capital = Current assets - Current Liabilities
Calculation of net working capital in 2017
Net working capital = Cash + Accounts receivable + Inventory - Accounts payable
Net working capital = 160,000 + 620,000 + 290,000 - 375,000
Net working capital (2016) $695,000
Calculation of net working capital in 2016
Net working capital = Cash + Accounts receivable + Inventory - Accounts payable
Net working capital = 120,000 + 520,000 + 305,000 - 350,000
Net working capital (2017) $595,000
Calculation of investment in net working capital
Investment in net working capital = 695,000 - 595,000
Investment in net working capital $100,000
Gannon's investment in net working capital for 2017 is $100,000

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