 # Networking Capital Essay

PART A:
1. To determine the networking capital in 2012 for the firm provided we need to collect information from the balance sheet. Networking capital is the measurement between the relationship involving current assets and current liabilities. Networking capital is current assets minus current liabilities. According to the balance sheet for 2012, the networking capital can be calculated as follows:
\$8,752.00-\$6,862.00= \$1890.00

2. The networking capital for 2011 (using the same formula: current assets- current liabilities) \$10,083.00-\$6,486.00=\$3597.00
3. The change in NWC decreased from 2011 (\$3597.00) to 2012 (\$1890.00) \$1707.00.
4. To determine the cash flow from assets:
Cash flow= cash flow to creditors + cash flow to owners
In this
Before solving this equation we will have to put several facts together to determine the best formula to solve. Some helpful information: we are searching for the future value of money, depositing the same amount each year (makes this an annuity), all these deposits occur at the end of the year. Given this information I determined the formula best to use is the future value interest of an annuity stream. Of the 3 method’s, I prefer to use:

FVIFA= FUTURE VALUE INTEREST FACTOR OF AN ANUNUITY
PMT= CASH FLOW PAYMENT
N= # OF PAYMENTS

R= INTEREST RATE
Now we can input our data into the formula to solve for the amount we will have in 17 years while depositing \$3000.00 in an original annuity at 9.5% per year. The answer is: \$116,140.50 at the end of 17 years
CONTINUED…
1.

2. To answer this question we start by finding out what we are looking for? We need the future value (15 years later) of \$116,140.50 (present value). We are discontinuing the annual \$3,000.00 payments but continue to earn 9.5% interest annually. To solve we
3. If we were to use the same example and change the time of the deposits to the beginning of the year verse the end of the year, in 17 years our new total would be \$127,173.85. \$11,033.85 more would be earned by making it at the beginning of the year, this increase is due to the money being in longer therefore earning interest longer.
To Solve I have used the simplified equation for solving for the Future Value of an Annuity Due. An annuity due is when payments/deposits are made at the beginning of the time period verse the end.

Continued….
3B.

4B. To solve for the amount received 15 years later, discontinuing deposits while still earning 9.5%, we would use the formula: