Emerald City Umbrellas sells umbrellas and rain gear in Seattle, so its sales are fairly level across the year. However, it is branching out to other markets where it expects demand to be much more variable across year. It expects sales in its new market of: Q1 $20,000 Accounts receivable Inventory Accounts payable Working capital Changes in working capital Sales It carries inventory equal to 20% of next quarter's sales, has accounts payable of 10% of next quarter's sales, and accounts receivable of 20% of this quarter's sales. a. Assume that it starts with $4,000 in inventory, $2,000 in accounts payable, and no accounts receivable for the new market. Forecast its working capital levels and changes over the four quarters. b. If Emerald City Umbrellas has net income equal to 20% of sales, what will be its financing needs over the four quarters? S Q2 $50.000 a. Assume that it starts with $4,000 in inventory, $2,000 in accounts payable, and no accounts receivable for the new market. Forecast its working capital levels and changes over the four quarters. Calculate Emerald City Umbrellas' working capital level in the current period and over the next four quarters: (Round to the nearest dollar.) Q3 $ Current o s 4,000 $ 2,000 $ Q3 $10,000 2,000 $ S Q1 Q4 $50,000 $ $ $ $ $ Q2 $ $ $ $ $ S S s $ $ Q4
Emerald City Umbrellas sells umbrellas and rain gear in Seattle, so its sales are fairly level across the year. However, it is branching out to other markets where it expects demand to be much more variable across year. It expects sales in its new market of: Q1 $20,000 Accounts receivable Inventory Accounts payable Working capital Changes in working capital Sales It carries inventory equal to 20% of next quarter's sales, has accounts payable of 10% of next quarter's sales, and accounts receivable of 20% of this quarter's sales. a. Assume that it starts with $4,000 in inventory, $2,000 in accounts payable, and no accounts receivable for the new market. Forecast its working capital levels and changes over the four quarters. b. If Emerald City Umbrellas has net income equal to 20% of sales, what will be its financing needs over the four quarters? S Q2 $50.000 a. Assume that it starts with $4,000 in inventory, $2,000 in accounts payable, and no accounts receivable for the new market. Forecast its working capital levels and changes over the four quarters. Calculate Emerald City Umbrellas' working capital level in the current period and over the next four quarters: (Round to the nearest dollar.) Q3 $ Current o s 4,000 $ 2,000 $ Q3 $10,000 2,000 $ S Q1 Q4 $50,000 $ $ $ $ $ Q2 $ $ $ $ $ S S s $ $ Q4
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 13P
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