Problem: You are the financial manager at CYA Corp. and you are considering three different levels of working capital. You estimate that sales would decrease slightly with lowered levels of current assets and you assume that your forecasts are reasonably accurate. CYA has $35 million in fixed assets. Your working capital options and the estimated operating results are listed below.
Option Working Capital Sales Forecast Net Profit
(in millions) (in millions) (in millions)
A $40 $133 $16.0
B 35 129 15.5
C 30 125 15.0
Q1. Which option would you consider to be the most conservative and which is the most aggressive?
Q2. Calculate the return on investment (ROI) for each option. Which option would be potentially most profitable?
Q3. Which option would you choose? Why?