Exercise 6

Rao Corporation has the following balance sheet.

Cash	$ 10	Accounts payable	$ 20
Short-term investments		Accruals	20
Accounts receivable	50	Notes payable	50
Inventory	40	Current liabilities	$ 90
Current assets	$130	Long-term debt	0
Net fixed assets	100	Common equity	30
		Retained earnings	50
Total assets	$230	Total liab. & equity	$230

Required:

1. How much net operating working capital does the firm have?
2. How does net working capital affect the decision making?

Please explain part B briefly, it is important.

(8 Marks)

Thank you.