Expected sales in the forthcoming year is $ 50,00. The firm plans to stickto the following policies towards the working capital; Debtors would bemaintained at 30 days of sales, Creditors would be maintained at 30 daysof cost of sales and Inventories would be maintained at 30 days of cost ofsales. Assume that the firm wants to keep Working capital sufficient tofinance Expected Credit Sales for the length of the Cash Cycle, how muchworking capital would the firm need? Consider 365 as the number of daysin an year for you cycle calculations. (Select the option closest to theanswer).411487398509426352

Working capital is the capital which is required by the business for the smooth running of the…

Answered: Expected sales in the forthcoming year…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 4P

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Optimal cash balance. The Madatung Corporation plans to have P 1 million in steady cash outlays for next year. The firm believes that it will face an opportunity interest rate of 15% and will incur a cost of P 200 each time it borrows (or withdraws). Required: Using the Baumol Model: 1. Determine the transactions demand for cash (the optimal borrowing or withdrawal lot size) for Madatung Company. 2. What will be the cash cycle for the firm (in days)? 3. What would be the average cash balance for the firm? 4. Compute the total relevant cost of cash balance. Jor
The IBC Company is considering undertaking an investment that promises the following cash flows: Period 0 is = -$100 Period 1 is =$80 Period 2 is = $80 If the company waits a year, it can make the following investment: Period 1 is = -2 $220 Period = $280 Assume a time value of 0.10. Which investment should the firm undertake? Use both the net present value and IRR approaches. With the IRR method, use incremental cash flows.
a) What is the optimal transaction size? b) What should be Rosal's average cash balance? c) What is the total cost?
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The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00
Establish a finance plan that assumes the sales estimates at the take price level would have been increased by $500,000. This means that the current take price level of $9,170,000 would increase by $500,000. This change would offer more collateral to the bank, and the bank would then increase the GAP loan. The GAP loan requires 200% collateral in unsold rights. This change would impact the equity investment. Question: What would be the new equity investment be if the budget stays the same?
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: -$25,000 today (t=0); $11,000 after one year (t=1), 17,000 after two years (t=2); and 10,000 after three years (t=3). What is the Internal Rate of Return (“IRR”) for this project?
The annual cash flows of a project are shown in the table below: Year t = 0 t = 1 t = 2 Cash Flow -$951 M $2,710 M -$1,887 M The discount rate for the project is 29.0% per annum and spreadsheet analysis has found an internal rate of return of 21.0% per annum. Given this information, should the firm invest in the project?
a firm wants to start a project. a team of financial analysts estimated the following cash flows. Years Cash Flow 0 -$100000 1 55000 2 43000 3 45000 suppose that the discount rate (interest rate) is 12%, the NPV will be?
Accounting Riley Enterprises and Lane Industries both have new projects that require an initial investment of $130,000 and will have annual cash inflows of $45,000. If Riley expects their project to last five years and Lane expects their project to last eight years, which one has the higher internal rate of return factor? The IRR factor cannot be determined with this data. Lane Industries Riley Enterprises The IRR factor will be the same for both companies.
Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: Assume MARR is 20% per year. Based on an external rate of return analysis (1) determine the investment’s worth; (2) state whether or not your results indicate the investment should be under taken; and (3) state the decision rule you used to arrive at this conclusion.
A firm requires Rs. 20 million in cash for meeting its transaction needs over the next four months, its planning horizon for liquidity decisions. It currently has the amount in the form of marketable securities that earn 12 percent annual yield. The cash payments will be made evenly over the planning period. The conversion of marketable securities into cash entails a fixed cost of Rs. 900 per transaction. What is the optimal conversion size as per Baumol model?

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