Assignment 2: Working Capital Management, E01), and External Funds
Part One: World g Capital Analysis
Capers, Inc. has ust promoted you to Chief financial officer. Since this is a new office in the corn any, you are understaffed and many of the responsibilities have been assigned to you.
The first task you have been assigned concerns the cash conversion cycle. Your boss has asked t at you examine the following data:
1. Inventory conversion period is 60 Days
2. Payables deferral period is 30 days
3. Receivables collection period of 40 days
The second task ncerns the cost of bank loans under differing conditions. Specifically:
1. The comp ny needs $1,500,000 for a new project
2. The loan ill cost 10% simple interest, for 4 months, with a 20% compensa ing balance.
Required:
1. What is th firm's cash conversion cycle?
2. How man times per year is the firm's inventory turnover, if sales are $4,000,006 per year?
3. If sales arc all credit sales and amount to $4,000,000 per year, what is the firm's avege investment in receivables?
4. What is the nominal interest rate on the loan?
Part Two: Cash Budget
Capers, Inc. is dqveloping its cash budget for the next year. Of Capers' sales, 20% is for cash, another 60% is collected in the month following sale, and 20% is collected in the second month following sale. November and December sales for 2010 were $229000 and $250,000, respectively.
In addition, Cape other expenditu in March pays 510,000 per month for rent and $20,000 each month for Tax prepayments for 532,030 are made each quarter beginning
The company's cgsb balance at December 31, 2010, was 528.000 and minimum balance c4 525, must be maintained at al braes. Assume that any short-term financing needed to maintain cash balance would be paid off in the month folowIng the month of fins sing if sufficient funds are available.
Interest on short. cm loans (12%) is paid monthly. Sorrowing to meet estenatecl monthly cash s takes place at the beginning of the month. For example. if in the month of Ap the firm expects to have a need for an additional 580.500. these funds would be /rowed at the beginning of Apra with interest of 5805 (.12 x 1/12
x $80.500) owed or April and paid at the beginning of May.
Sales for Cawr4 Inc.:
January $229,000
February 5250.000
March 5270,000
April $275.030
May $280,000
June $290,000
July $280,000
August $280.000
Required:
• Prepare a monthly cash budget for Capers Inc covering the first 7 months of 2010.
Part Three: EOO
Capers Inc. is also initiating an inventory management program using EOO. Capers needs fa ever supplies to manufacture its products. The CFO estimates that the com•will need about 250.000 cases next year. The cost of storing cases is about $ .10 each The ordering cost is 5400 fore shipment
Required:
1. What 'et EOO?
2. How ma times wet you order?
3. What are a shortcomings of the EOO? What is your rationale'
Deliverables:
• Ely Tend y, June 14, 2018, complete the requirements for Pans One, Two, and Three above. Submit your results to the W5: Assignment 2 Dropbox a M'. Excel document showing as calculations, and in geed form.
Warne your doc ent(s) SU_FIN3030_WS_A2 _LastName_Firstlnitial
Assignment 2 Correctly identifi wadingCriteria
the cash conversom cycle. Maximum