Question
In: Finance
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 agoRelated Solutions
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