Question
In: Finance
Exercise 6 Rao Corporation has the following balance sheet. Cash $ 10 Accounts payable $...
Exercise 6
Rao Corporation has the following balance sheet.
|
Cash |
$ 10 |
Accounts payable |
$ 20 |
|
Short-term investments |
Accruals |
20 |
|
|
Accounts receivable |
50 |
Notes payable |
50 |
|
Inventory |
40 |
Current liabilities |
$ 90 |
|
Current assets |
$130 |
Long-term debt |
0 |
|
Net fixed assets |
100 |
Common equity |
30 |
|
|
Retained earnings |
50 |
|
|
Total assets |
$230 |
Total liab. & equity |
$230 |
Required:
- How much net operating working capital does the firm have?
- How does net working capital affect the decision making?
Please explain part B briefly, it is important.
Thank you.
Solutions
Expert Solution
B net working capital affect the decision making
1) The interest rate which is most commonly used in the working capital decision is known as cost of capital.
2) Working capital decision criteria which focus on the interest rates includes the debtors management and the short-term financing.
3) The discount rates are typically applied to the different types of the companies which show significant differences.
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