Seminar 2 Finance

Seminar 2: Problems

Chapter 3:

1. The assets of Dallas & Associates consist entirely of current assets and not plant and equipment. The firm has total assets of $2.5 million and new plant and equipment equals $2 million. It has notes payable of $150.000, long-term debt of $750,000, and total common equity of $1.5 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

a. What is the company’s total debt?

Total assets – Common equity = Company Total Debt

$2,500,000 – 1,500,000 = 1,000,000

b. What is the amount of total liabilities and equity that appears on the firm’s balance sheet?

Total Liabilities and Equity = Total Liabilities and Total Equity

Total Liabilities and Equity = 1,000,000 + 1,500,000

Total Liabilities and Equity = 2,500,000

c. What is the balance of current assets on the firm’s balance sheet?

Total Assets -Plant and Equipment = Current Assets

$2,500,000 - $2,000,000 = $500,000

$500,000 = Current Assets

d. What is the balance of current liabilities on the firm’s balance sheet?

Current liabilities = Total Liabilities – Long Term Debt

Current Liabilities = $1,000,000 - $750,000

Current Liabilities = $250,000

e. What is the amount of accounts payable and accruals on its balance sheet? (Hint consider this as a single line item on the firm’s balance sheet.)

Accounts Payable and Accrual = Current Liabilities – Notes Payable

Accounts Payable and Accrual = $250,000 - $150,000

Accounts Payable and Accrual = $100,000

f. What is the firm’s net working capital?

Net Working Capital = Current Assets – Current Liabilities

Net Working Capital = $500,000 - $250,000

Net Working Capital = $250,000

g. What is the firm’s net operating working capital?

Net Operating Working Capital = (Cash + Accounts Receivable + Inventory) – (Account Payable + Accruals)

Net Operating Working...