From the data given in the problem, we know the following:

Current assets $ $500,000$c Accounts payable and accruals$

$100,000$e

Net plant and equipment $2,000,000$ Notes payable $150,000$

Current liabilities $ $250,000$d

Long$-$term debt $750,000$

Total common equity $1,500,000$

Total assets $$2,500,000$ Total liabilities and equity $$2,500,000$b

Note: Superscripts correspond to parts below.

a$.$ Total debt $=$ Short$-$term debt $+$ Long$-$term debt

Total debt $=$ $$150,000+$ $$750,000$

Total debt $=$ $$900,000.$

b$.$ We are given that the firm$$s total assets equal $$2,500,000.$ Since both sides of

the balance sheet must equal, total liabilities and equity must equal total assets

$=$ $$2,500,000.$

c$.$ Total assets $=$ Current assets $+$ Net plant and equipment

$$2,500,000=$ Current assets $+$ $$2,000,000$

Current assets $=$ $$2,500,000$ $$2,000,000$

Current assets $=$ $$500,000.$

d$.$ Total liabilities and equity $=$ Current liabilities $+$ Long$-$term debt $+$ Total

common equity

$$2,500,000=$ Current liabilities $+$ $$750,000+$ $$1,500,000$

$$2,500,000=$ Current liabilities $+$ $$2,250,000$

Current liabilities $=$ $$2,500,000$ $$2,250,000$

Current liabilities $=$ $$250,000.$

e$.$ Current liabilities $=$ Accounts payable and accruals $+$ Notes payable

$$250,000=$ Accounts payable and accruals $+$ $$150,000$

Accounts payable and accruals $=$ $$250,000$ $$150,000$

Accounts payable and accruals $=$ $$100,000.$

f$.$ Net working capital $=$ Current assets $$ Current liabilities

Net working capital $=$ $$500,000$ $$250,000$

Net working capital $=$ $$250,000.$

g$.$ Net operating working capital $=$ Operating current assets $$ Operating current

liabilities

Net operating working capital $=($Current assets $$ Excess cash$)($Current

liabilities $$ Notes payable$)$

Net operating working capital $=($$$500,000$ $$0)($$$250,000$ $$150,000)$

Net operating working capital $=$ $$400,000.$

h$.$ NOWC $$ NWC $=$ $$400,000$ $$250,000$

NOWC $$ NWC $=$ $$150,000.$

In this example, the only difference between the two equations is equal to the

notes payable balance $--$ the firm has no excess cash, so its current assets equal

operating current assets. If this firm had excess cash, then the difference

between the NWC and NOWC equations would have been the difference between

Notes payable and excess cash.