A firm’s balance sheets for year-end 2011 and 2012 contain the following data. A

Question

A firm’s balance sheets for year-end 2011 and 2012 contain the following data. All items are in millions of dollars.

Dec. 31, 2011 Dec. 31, 2012

Accounts receivable 33.2 36.6

Inventories 26.2 30.6

Accounts payable 13.2 26.6

Calculate the net working capital in 2011. (Enter your answer in millions rounded to 1 decimal place.)

Calculate the net working capital in 2012. (Enter your answer in millions rounded to 1 decimal place.)

What happened to investment in net working capital during 2012? (Input the amount as a positive value. Enter your answer in millions rounded to 1 decimal place.)

net working capital has increased/decreased by $__________ million.

Calculate the net working capital in 2011. (Enter your answer in millions rounded to 1 decimal place.)

Calculate the net working capital in 2012. (Enter your answer in millions rounded to 1 decimal place.)

What happened to investment in net working capital during 2012? (Input the amount as a positive value. Enter your answer in millions rounded to 1 decimal place.)

net working capital has increased/decreased by $__________ million.

Explanation / Answer

Net working capital can be calculated using the formula as below

NWC = A/R + Inventories - A/P

a) So NWC for 2011 = 33.2 + 26.2 - 13.2 = $46.2 million

b) So NWC for 2012 = 36.6 + 30.6 - 26.6 = $40.6 million

c) NWC has decreased from 2011 to 2012, by 46.2 - 40.6 = $5.6 million, The decrease is mainly because of the increase in Accounts Payable

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