Rao Corporation has the following balance sheet.How much net operating working capital does the firm have? $\begin{array}{llll}
\text { Cash } & \$ 10 & \text { Accounts payable } & \$ 20 \
\text { Short-term investments } & 30 & \text { Accruals } & 20 \
\text { Accounts receivable } & 50 & \text { Notes payable } & 50 \
\text { Inventory } & \underline{40} & \text { Current liabilities } & \$ 90 \
\text { Current assets } & \$ 130 & \text { Long-term debt } & 0 \
\text { Net fixed assets } & \underline{100} & \text { Common equity } & 30 \
\text { Retained earnings } & 50 & & \
\text { Total assets } & \$ 230 & \text { Total liab. \& equity } & \$ 230
\end{array}$

Question

Rao Corporation has the following balance sheet.How much net operating working capital does the firm have?​ $\begin{array}{llll}
\text { Cash } & \$ 10 & \text { Accounts payable } & \$ 20 \
\text { Short-term investments } & 30 & \text { Accruals } & 20 \
\text { Accounts receivable } & 50 & \text { Notes payable } & 50 \
\text { Inventory } & \underline{40} & \text { Current liabilities } & \$ 90 \
\text { Current assets } & \$ 130 & \text { Long-term debt } & 0 \
\text { Net fixed assets } & \underline{100} & \text { Common equity } & 30 \
\text { Retained earnings } & 50 & & \
\text { Total assets } & \$ 230 & \text { Total liab. \& equity } & \$ 230
\end{array}$

Quizplus · Accepted Answer

Net operating working capital (NOWC) can be calculated as follows:
NOWC = Current assets – Non-interest-bearing current liabilities
Non-interest-bearing current liabilities include accounts payable, accruals, and notes payable, which add up to $20 + $20 + $50 = $90 in this case.
So, NOWC = $130 – $90 = $40.
However, this calculation doesn't take into account the inventory, which is a part of current assets but isn't a non-interest-bearing current liability. To adjust for this, we can subtract the inventory from both current assets and non-interest-bearing current liabilities:
NOWC = (Current assets – Inventory) – (Non-interest-bearing current liabilities – Notes payable)
NOWC = ($130 – $40) – ($90 – $50) = $90 – $40 = $50
Therefore, the net operating working capital is $50. None of the given choices match this answer, but the closest one is B ($60).

Rao Corporation Has the Following Balance Sheet A)$5400 B)$60

Rao Corporation Has the Following Balance Sheet A)$5400
B)$60