1. Which of the following assets (if any) are not part of a firm\'s working capi
ID: 1248152 • Letter: 1
Question
1. Which of the following assets (if any) are not part of a firm's working capital investment?a.cash
b.accounts receivable
c.inventory
d.none of the above
2. Renfro Industries balance sheet for December 31, 20x3 is as follows:
Assets ($000) Liabilities and Equity ($000)
Cash $ 8,000 Accounts Payable $ 36,000
Marketable Securities 4,000 Notes Payable 12,000
Accounts Receivable 60,000 Other Current Liabilities 32,000
Inventories 100,000 Long-term debt 80,000
Plant & Equip. 220,000 Preferred Stock 48,000
Less: Deprec. 64,000 Common Stock 20,000
Net Plant & Equip. 156,000 Paid-in Surplus 40,000
Retained Earnings 60,000
Total Assets $328,000 Total Claims $328,000
What is Renfro's net working capital at the end of 20x3?
a.$8 million
b.$36 million
c.$92 million
d.$172 million
Explanation / Answer
1) Some of the companies exclude cash and cash equivalents while calculating the Working capital. Generally, the current assets include Cash, accounts receivables, and inventory and marketable securities. The working capital includes all those assets which are needed for the day-to-day operations. Therefore, the correct option is a) Cash. 2) The formula for calculating the Net working capital is NWC = Current assets - Current liabilities Current assets = Marketable securities + Cash + Inventory + Accounts receivables = $4,000,000 + $8,000,000 + $100,000,000 + $60,000,000 = $172,000,000 Current liabilities = Accounts payable + Notes payable + Other current liabilities = $36,000,000 + $12,000,000 + $32,000,000 = $80,000,000 Therefore, NWC = $172,000,000 - $80,000,000 = $90,000,000 Therefore, the Net working capital is $90,000,000 assuming that the given figures are in millions of dollars. If it is not given in millions then the answer is $90,000
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