W Cap Handout Solution BB(1) (1)
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Transcript of W Cap Handout Solution BB(1) (1)
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8/19/2019 W Cap Handout Solution BB(1) (1)
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Working Capital Management – summary solution
Q 2) Estimation of duration of Operating Cycle
Assumptions: 365 days in a year, RM issued at the beginning of the production process,
manufacturing expenses incurred evenly throughout and W! is complete to the extent of 5"#,all sales are on credit, creditors are only to$ards purchase of RM, all RM purchases are on
credit,
RM holding period %3&' days
W! holding period (6&5% days
)* holding period %5&35 days
+ollection period 5" days
!ayment period %%&'% days
!ayment period - Avg creditors. +redit purchases per day/
!urchases %"(3 - +onsumption of RM %"(3 0 +losing RM nventory 1 2pening RM inventory
- %3(0%"(" - %4(
Q 3) Estimation of Working Capital Reuirement!
Assumptions: 36" days in a year, RM and supplies issued at the beginning of the production process, 2ther expenses incurred evenly throughout the year and W! units are finished only to
the extent of 5"#, Administrative expenses are not included in valuing )* inventory,
RM nventory 3"
upplies nventory 3"
W! nventory7&'5
)* nventory (5&('
8ebtors 33&"5
+ash 6&%5
+reditors 6 /
9stimated W+ap Remt (('&%%
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; 5/ !lan +
; '/ mpact on profit due to stricter collection policy:
aving in bad debt expenses 0%3%""
avings due to reduction in investment in receivables %"# of (73"57(%44et gain 0((4(3
; 7/ a/+ost of giving up cash discount b/Recommendation
?@ ("&%4# >ominal rate A!R/)orego discount
AB+ (7&43# Avail the discount
@2> (7&6%# Avail the discount
)or ?@,
the cost of giving up discount ("&%4# /is the nominal rate as calculated in class/&
>ominal rate : (".
c/ f @2> allo$s payment period to be extended by another %" days, cost of giving upthe cash discount - %.
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