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# Tut10q - Strictly for course AB102(2009 internal...

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Sept 13, 2009 Strictly for course AB102 (2009) internal circulation only. Nanyang Business School AB102 Financial Management Tutorial 10: Working Capital and Financial Planning (Common Questions) 1) (16-5) Receivables investment . McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are \$912,500; 40 percent of the customers pay on the 10 th day and take discounts, while the other 60 percent pay, on average, 40 days after their purchases. a) What is the days’ sales outstanding? b) What is the average amount of receivables? c) What is the percentage cost of trade credit to customers who take the discount and to those who do not take it? 2) (16-7) Working capital cash flow cycle . The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. Christie’s 2005 sales (all on credit) were \$150,000, and it earned a net profit of 6 percent, or \$9,000. It turned over its inventory 6 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling \$35,000. Christie’s payables deferral period is 40 days. a) Calculate Christie’s cash conversion cycle. b) Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. 3) (16-8) Working capital policy . The Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately \$2 million as a result of an asset expansion presently being undertaken.

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Tut10q - Strictly for course AB102(2009 internal...

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