III- Working Capital Management;A- Applegate Bicycle Company is trying to devise an apr?piate working capital policy. Their most recent balance sheet is as follows: Balance Sheet, December 31, 20X5 (in thousands);Assets Liabilities and Owner's Equity;Cash $ 30 Accounts payable $35;Accounts Receivable 50 Notes payable 10;Inventories 30 Accruals 5;Current Assets $110 Current Liabilities $50;Net fixed assets 150 Mortgage loan (at 13%) 80;Common equity 130;Total liabilities and;Total assets $260 owner's equity $260;You know that net profits in 20X5 were $28,000.;1- What is Applegate's current level of working capital?;2- What percentage of total assets is invested in working capital?;3- Calculate Applegate's return on investment (ROI).;4- Suppose the firm reduces cash, accounts receivable, and inventory by 10% and uses the proceeds to pay off some of its accounts payable. Now, assuming all other items remain the same, answer a, b, and c above using these new figures. What has happened? What warning would you offer?
Working Capital and Return on Investment
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