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GWC = current assets = $110; NWC = CA - CL = $110 - $50 = $60 $110 / $260 = 0.423 or 42.3% ROI = Net Profits / Total Assets = $28/$260 = 10.77% GWC=$99; NWC=$54; Proportion = $99/$249 = 39.8%; ROI = $28 / $249 = 11.24%
(millions) $ 80 100 90
In this particular problem we can see that current assets represent from 43% to 48% of total assets. Given the consistency and necessity of current assets, we could design a financing plan where a majority of our current assets were financed with LT financing (LT Debt, common stock, preferred stock). If we forecasted out our needs it would be reasonably safe at this point to finance roughly $90 of current assets with a long-term form of financing. We could take a more aggressive approach (more ST financing) if we were willing to accept the risks associated with that decision. We could also finance with more longterm financing and reduce our risk and our expected return.
3.
Explain the differences between the following pieces of terminology: 'working capital management', 'net working capital', and 'gross working capital'. Your Answer: abc
Suggested Response: Working capital management refers to the overall management of the firm's current assets and their associated financing. Thus, it is 'big picture' of what the firm is doing. Net working capital and gross working capital are terms that are often used interchangeably with the phrase 'working capital' but they are different. Accounting professionals often are referring to net working capital which is the difference between current assets and current liabilities. Finance professionals are often referring to gross working capital which represents the