Financial Policy and Planning
MBA 629
Summer I 2014
HW # 2
Due Date: June 9, 2014
1. Janine, Inc. has $600 in inventory, $1200 in fixed assets, $400 in accounts receivable, $200 in accounts payable, and $100 in cash. What is the amount of the current assets? Explain your answer.

Assets Liabilities Inventory 600 Accounts Payable 200
A/R 400
Cash 100
Total Current Assets 1100
Fixed Assets 1200 Total Assets (Current Assets+Fixed Assets) 2300 Total Liabilites 200

2. At the beginning of the year, Michael, Inc. has current assets of $190 and current liabilities of $105. At the end of the year, the current assets are $205 and the current liabilities are $125. What is the change in net working capital? Explain your answer.

Assets Beginning of the year: 190$
Liabilities Beginning of the year: 105$

Assets End of the year: 205$
Liabilities End of the year: 125$

There is an increase of 8% in Assets, and 19% in Liabilities.

Net Working Capital Beginning of the year = 190$ - 105$ = 85$
Net Working Capital End of the year = 205$ - 125 = 80$

Change in Net Working Capital = 80$ - 85$ = -5$

Net Working Capital has decreased by 6%.

3. Renako Golf, Inc. has sales of $38,950, costs of $33,000, depreciation expense of $1,900, and interest expense of $1,500. If the tax rate is 40 percent, what is the operating cash flow? Explain your answer

Sales (Revenue): $38,950
Costs: $33,000
Depreciation: $1900
Interest Expenses: $1500
Tax rate: 40%

First we need to find other variables to compute the operating cash flow:

Total Operating Cost: Costs + Depreciation = 33,000 + 1900= $34,900
Earnings before Interest and Taxes = Sales (Revenue) – Total Operating Costs
EBIT= $38,950 - $34,900= $4050
Taxes= $2550*0.4= $1020

Operating Cash Flow= EBIT – Taxes + Depreciation
Operating Cash Flow=