Given the following Financial Information Answer the following question: 2017 2018 Cash 2,000 189,100 Accounts Receivable...

Given the following Financial Information Answer the following question:

	2017	2018
Cash	2,000	189,100
Accounts Receivable	2,000	2,020
Inventory	8,000	8,080
Prepaid Assets	3,000	3,030
Other Assets	4,000	4,040
Total Current Assets	19,000	206,270
Net PPE	20,000	4,000
Intangibles	10,000	10,000
Total Assets	49,000	220,270
Accounts Payable	8,000	8,080
Salary Payable	6,000	6,060
Notes Payable	3,000	3,000
Total Current Liabilities	17,000	17,140
Long-Term Debt	40,000	40,000
Total Liabilities	57,000	57,140
Common Stock	80,000	80,000
Retained Earnings	-88,000	83,130
total equity	8,000	163,130

	2018
Sales	1,733,000
COGS	1,299,750
Gross Profit	433,250
SG&A	23,000
Other Operating Expenses	14,000
Depreciation	2,000
Interest	3,676
Taxes	142,560
Net Income	248,014
dividends	76,884

Calculate the Change in Net Operating Working Capital (NOWC)

		a. $187,130.00
		b. $187,270.00
		c. $-187,270.00
		d. $-187,130.00

Expert Solution

Net Operating Working Capital is the difference between Operating Current Assets and Operating Current Liabilities.

NOWC = Operating Current Assets - Operating Current Liabilities

Operating current assets are the current assets which directly support the operating cycle of a company.They do not include marketable securities and other financial short term assets. Similarly, operating current liabilities include only the liabilities which are directly related to the operating process.

NOWC of 2017 = Cash + AR + Inventory + Prepaid Assets + Other Assets - AP - Salary Payable

=> 2,000 + 2,000 + 8,000 + 3,000 + 4,000 - 8,000 - 6,000=> 5,000

NOWC of 2018 = Cash + AR + Inventory + Prepaid Assets + Other Assets - AP - Salary Payable

=> 189,100 + 2,020 + 8,080 + 3,030 + 4,040 - 8,080 - 6,060=> 192,130

Change in Net Operating Working Capital = NOWC of 2018 - NOWC of 2017

=> 192,130 - 15,000

=> 187,130 (Option A)

Note : Other current assets is treated as an operating current asset as there is no specific info. Notes Payable is a financial current asset and is not directly related to the operating cycle. So, it is not included in the NOWC.

jeff jeffy answered 1 year ago

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