Problem 36 Laurel Electronics reported the following informa

Problem 3.6 Laurel Electronics reported the following information at its ar inventory of $7,121,599, accounts receivables of $3,488,121, short-term notes payable worth $1,151,663, and other current assets of $121,455 is all at book va market reveals that the market value of the firm\'s inventory is 17 percent below its book value, its receivables are 19 percent below its book value, and the market value of its current liabilities is identical to the book value h and marketable securities worth $1,235,455, accounts payables worth $4,159,357 lue. Suppose marking to What is the firm\'s net working capital using market values? (Round intermediate calculations and final answer to the nearest whole dollar, e.g. 5,275.) Net working capital $ What is the percentage change in net working capital? number e.g. -45 or parentheses e.g. (45).) Round answer to l decinal place, eg, 17.5%. Enter negative amounts using either a negative sign preceding the Percentage change in net working capita

Solution

Net Working Capital = Current Assets - Current Liabilities

Question 1

Net Working Capital = (Cash & Mkt. securities + Accts. Receivables + Inventory +Other Current Assets) - (Accounts payable + S/T notes payable)

Given are book values in question and we need to calculate the market value for each:

Inventory = $7,121,599 * (1 - 17%) = $5,910,927.17

Accounts Receivables = $3,488,121 * (1 - 19%) = $2,825,378.01

So, NWC based on market values:

NWC = (1,235,455 + 5,910,927.17 + 2,825,378.01 + 121,455) - (4,159,357 + 1,151,663)

NWC = 4,782,195 --> Answer to first

Question 2

We need to calculate the NWC at book value:

NWC = (1,235,455 + 7,121,599 + 3,488,121 + 121,455) - (4,159,357 + 1,151,663) = 6,655,510

% Change in NWC = (4,782,195 - 6,655,510)/6,655,510 = -28.15% --> CHange in NWC from book value to market value