Working Capital Management Graded Assignment | Read Chapter 15| Back to Assignme

Question

Working Capital Management Graded Assignment | Read Chapter 15| Back to Assignment Due Thursday 08.02.18 at 11:45 PM Attempts: Keep the Highest: 1. Calculating working capital AaAa Big Cloud Burger Inc:'s CFO has decided to take a closer look at the firm's short-term assets and liabilities. Big Cloud Burger Inc.'s balance sheet follows. Balance Sheet Cash Accounts receivable Inventory Total current assets $120,000 Accounts payable $170,000 Accruals $200,000 Notes payable 490,000 Total current liabilities $145,000 $90,000 $120,000 $355,000 $525,000 $310,000 $1,190,000 Long-term debt Net plant and equipment $700,000 Total common equity Total assets $1,190,000 Total liabilities and equity The value of Big Cloud Burger Inc.'s working capital is , while its net working capital is The value of Big Cloud Burger Inc.'s net operating working capital is Big Cloud Burger Inc.'s current ratio is If Big Cloud Burger Inc. decides to purchase a new building with long-term debt, its current ratio will Continue without saving DELL

Explanation / Answer

Working Capital = Current Assets = $ 490000

Net Working Capital = Current Assets - Current Liabilities = 490000 - 355000 = $ 135000

Net Operating Working Capital = Operating Current Assets - Operating Current Liabilities = (Cash + Accounts Receivable + Inventory) - (Accounts Payable + Accruals) = (120000 + 170000 + 200000) - (145000 + 90000) = 490000 - 235000 = $ 255000

Current Ratio = Current Assets / Current Liabilities = 490000 / 355000 = 1.38

If the firm buys a builiding (an asset) with long-term debt, the long-term debt account would increase on the right hand side and so would the net plant and equipment value on the left hand side. The current assets and current liabilities remain unchanged. Hence, the current ratio would still be 1.38.

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