HW01-EE366-Soln-4thEd - HW 1a EE366 McCann 2.2: (a) Working...

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HW 1a EE366 McCann 2.2: (a) Working capital requirement is the change in working capital. Change in WC = Change in current assets – Change in current liabilities Δ WC = + ($100k - $20k) – ($30k - $40k) = $90k The amount of money needed to operate the business increases and this money must be supplied to the business from some external source. The decrease in notes payable may or may not be a change to current liabilities (payable in less than 12 months); this information is not provided by the author, but he put it here in his solution. Cash on hand is a current asset. It is not included in this calculation because it is not really invested in the business operations. (b) Taxable Income = Revenue – Manufacturing costs – Expenses However, the manufacturing costs must “match” the revenue. Total manufacturing costs = $150k + 200k + 100k + 200k = $650k Inventory increases by $100k indicating that not all of the product that was manufactured was sold. The manufacturing cost that matches the revenue is $550k.
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HW01-EE366-Soln-4thEd - HW 1a EE366 McCann 2.2: (a) Working...

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