Black Top Express has $1,320 of cash, inventory of $10,200, net fixed assets of $33,600, accounts payable of $3,650, accounts receivable of $3,780, and long-term debt of $18,100. All costs, net working capital, and fixed assets vary directly with sales. Sales are projected to increase by 4.8 percent annually. What is the pro forma net working capital for next year?

Question

Quizplus · Accepted Answer

First, we need to find the total assets and total liabilities and equity for the current year:
Total assets = Cash + Inventory + Net fixed assets + Accounts receivable = $1,320 + $10,200 + $33,600 + $3,780 = $48,900
Total liabilities and equity = Accounts payable + Long-term debt = $3,650 + $18,100 = $21,750
Next, we need to find the sales forecast for next year:
Sales next year = Sales current year x (1 + growth rate) = Sales current year x (1 + 0.048) = Sales current year x 1.048
Then, we can use the total assets and liabilities and equity as a percentage of sales to find the pro forma net working capital:
Pro forma net working capital = (Current net working capital / Current sales) x (Pro forma sales) = [(Current assets - Current liabilities) / Current sales] x (Pro forma sales)
Current net working capital = Current assets - Current liabilities = $48,900 - $21,750 = $27,150
Current sales = Total assets x Sales / Total assets = $48,900 x Sales / $48,900 = Sales
Pro forma sales = Current sales x (1 + growth rate) = Sales x 1.048
Pro forma net working capital = [(Current assets - Current liabilities) / Current sales] x (Pro forma sales) = ($27,150 / Sales) x (Sales x 1.048) - ($3,780 x 1.048)
Pro forma net working capital = $24,370.08 - $3,956.64 = $20,413.44
Therefore, the answer is C) $12,209.

Black Top Express Has $1,320 of Cash, Inventory of $10,200