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BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plant...

BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $5 million and net plant and equipment equals $3.5 million. It has notes payable of $500,000, long-term debt of $2,000,000, and total common equity of $1.75 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

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Expert Solution

The assets consist entirely of Current assets and net plant and equipment.

So, Assets= Current assets+Net plant and equipment

Assets= $5 million

Net plant and equipment= $3.5 million

So, Current assets= $5 million- $3.5 million

= $1.5 million

The firm only finances with debt and common equity, so

Total liabilities & Shareholders equity= Current Liabilities+Long term debt+ Common equity

We know that,

Total liabilities & Shareholders equity= Total Assets

So,

Total Assets= Current Liabilities+Long term debt+ Common equity

Long term debt= $2 million

Common equity= $1.75 million

So,

$5 million= Current Liabilities+$2 million+$1.75 million

Current Liabilities= $5 million-$2 million-$1.75 million

= $1.25 million

Notes payable is considered as a short term debt and therefore will be excluded

So, Net operating working capital= Current assets- Current Liabilities excluding Notes payable

= $1.5 million- ($1.25 million-$0.5 million)

= $0.75 million or $750,000

jeff jeffy answered 1 year ago
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