To capture production efficiencies semper produces

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Unformatted text preview: times, Semper’s inventory increases to $750,000, and its accounts receivable increase to $400,000. To capture production efficiencies, Semper produces pumps at a constant rate throughout the year. Thus accounts payable remain at $50,000 throughout the year. Accordingly, Semper has a permanent funding requirement for its minimum level of operating assets of $135,000 ($25,000 $100,000 $60,000 $50,000) and peak seasonal funding requirements (in excess of its permanent need) of $990,000 [($25,000 $750,000 $400,000 $50,000) $135,000]. Semper’s total funding requirements for operating assets vary from a minimum of $135,000 (permanent) to a seasonal peak of $1,125,000 ($135,000 $990,000). Figure 14.2 depicts these needs over time. EXAMPLE Funding Requirements for Operating Assets ($) 603 with its sales cycles, and the firm will have seasonal funding requirements in addition to the permanent funding required for its minimum investment in operating assets. seasonal funding requirement An investment in operating assets that varies over time as a result of cyclic sales. FIGURE 14.2 Working Capital and Current Assets Management Semper Pump Company’s Total Funding Requirements Semper Pump Company’s peak funds need is $1,125,000, and its minimum need is $135,000 1,125,000 Peak Need 1,000,000 Seasonal Need ($0 to $990,000, average = $101,250) 500,000 Total Need 135,000 0 Permanent Need ($135,000) Minimum Need 1 year Time Total Need (between $135,000 to $1,125,000) 6...
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This document was uploaded on 01/19/2014.

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