# Assume 360 days year for computation working capital

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Assume 360 days / year for computation
Working capital Example CCC = AAI + ACP APP = 60 + 40 35 = 65 days Resources invested in CCC : Inventory = \$10,000,000 x 0.75 x (60/360) = \$ 1,250,000 + Accounts receivable = \$10,000,000 x (40/360) = \$ 1,111,111 - Accounts payable = \$10,000,000 x 0.75 x 0.65 x (35/360) = \$ 473,958 Total = \$ 1,887,153 A 5 day reduction in the average collection period would reduce the resources invested in CCC by \$ 138,889 { \$10 m x (5/360)}
Permanent Funding requirement Example Nicholson Co. holds, on average, \$50,000 in cash and marketable securities, \$1,250,000 in inventory, and \$750,000 in accounts receivable. Nicholson’s business is very stable over time, so its operating assets can be viewed as permanent. In addition Nicholson’s accounts payable of \$ 425,000 are stable over time. What is the permanent funding requirement ? The permanent investment in operating assets is \$1,625,000 ( \$50,000 + \$1,250,000 + \$750,000 - \$425,000). That amount would equal its permanent funding requirement .
Seasonal Funding requirement Example Semper Pump Co., which produces bicycle pumps has seasonal sales with its peak sales driven by summertime purchase of bicycle pumps. Semper holds, at minimum, \$25,000 in cash and marketable securities, \$100,000 in inventory, and \$60,000 in accounts receivable. At peak times, inventory increases to \$750,000 and its accounts receivable increase to \$400,000. To capture production efficiency, Semper produces pumps at a constant rate throughout the year. Thus accounts payable remain at \$50,000 throughout the year. What is the permanent funding requirement & peak funding requirement? Permanent funding requirement for its minimum level of operating assets is \$135,000 ( \$25,000 + \$100,000 + \$60,000 - \$50,000) Peak seasonal funding requirement (in excess of permanent need) is \$990,000 (25,000 + \$750,000 + \$400,000 - \$50,000 - \$135,000).
Computing cash requirement for working capital Estimate the cash cost of various current assets required by the firm Deduct the current liabilities from the cash cost of current assets
Non cash Working Capital Non cash WC = Non cash current assets Non-interest bearing current liabilities

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