question archive A firm has 10
A firm has 10
Subject:AccountingPrice:2.84 Bought3
A firm has 10.000 $ in inventories, a current ratio equal to 1,2 and a quick (acid-test) ratio equal to 1,1. What would be the Net Working Capital?
- 10.000 $
- 20.000 $
- 30.000 $
- 40.000 $
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| Let the Current Assets be CA | ||
| Let the Current Liabilities be CL | ||
| Current ratio = CA/CL | ||
| 1.2 = CA/CL | ||
| CA = 1.2CL | ||
| Quick (acid-test) ratio = (CA-Inventories)/CL | ||
| 1.1 = (1.2CL-10000)/CL | ||
| 1.1CL = 1.2CL-10000 | ||
| 0.1CL = 10000 | ||
| CL = 10000/0.1 = $100000 | ||
| CA = 100000*1.2 = $120000 | ||
| Net Working Capital = Current Assets-Current Liabilities = 120000-100000 = $20,000 | ||
| Option B is correct |
