Working Capital Analysis

School: Academy of Radio and Television Broadcasting           Price: $10.00 USD

Document Description

Capers, Inc. has just promoted you to Chief financial officer. Since this is a new office in the company, you are understaffed and many of the responsibilities have been assigned to you.
The first task you have been assigned concerns the cash conversion cycle. Your boss has asked that you examine the following data:
Inventory conversion period is 60 Days
Payables deferral period is 30 days
Receivables collection period of 40 days
The second task concerns the cost of bank loans under differing conditions. Specifically:
The company needs $1,500,000 for a new project.
The loan will cost 10% simple interest, for 4 months, with a 20% compensating balance.
What is the firm’s cash conversion cycle?
How many times per year is the firm’s inventory turnover, if sales are $4,000,000 per year?
If sales are all credit sales and amount to $4,000,000 per year, what is the firm’s average investment in receivables?
What is the nominal interest rate on the loan?
Part Two: Cash Budg

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Academy of Radio and Television Broadcasting
Caper Inc.Inventory conversion period60 daysPayables deferral period 30 daysReceivables collection period40 daysnew loan requiredSimple interestCompensating balanceNumber of months150000010%20%41)What is the firm's cash conversion cycle?Cash conversion cycle = Inventory conversion period+ Receivables collection period - ReceivabCash conversion cycle = 60+40-30 = 70 days2)How many times the firm's inventory turnover, if sales are 4,000,000 per year?Sales4.000.000,00A) Inventory tunover can be directly calculated from the inventory conversion periodInventory conversion period = 365/ inventory turnover ratioInventory turnover ratio = 365/ inventory conversion period = 365/60 = 6Inventory turnover = 6 times6,08333B) It can also be calculated from the sales given as follows:Inventory turnover = Sales / Average inventory60 = inventory / 1095810.958,90Inventory657.534,25Turnover6,08Inventory turnover = 6 times3)If sales are all credit sales and amount to $4,000,000 per year, what is the firm's averageCredit sales4.000.000,00Receivables collection period40 daysaverage investment in receivables = Annual credit sales *(Receivables collection period)/3654000000*(40/365)438356,164)What is the nominal interest rate on loan ?new loan required150000050000Simple interest10%Compensating balance20%Number of months4Nominal interestCompensating balance50000300000Disbursed amountNominal interest rate120000012,50%t is th
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