| Global Financial Managaement |
| Rivier University |
| Module 7 - Problem set for Working Capital |
| A company has $20,000 in cash, $10,000 in accounts receivable and $45,000 in fixed assets. It has $12,500 in accounts payable. It owes $50,000 in two years on a note that has an annual interest payment of $5,000. What is its working capital? |
| Solution: | $12,500 | $20,000 cash + $10,000 A/R - $12,500 A/P - $5,000 |
| A company has $350,000 in accounts receivable, $100,000 in current inventory, and $125,000 in accounts payable. What is its working capital? |
| Solution: | $325,000 | $350,000 A/R + $100,000 current inventory - $125,000 A/P |
| A company has average inventory of $10 million and COGS of $15 million. Its average accounts receivable is $1 million and it had $3 million in credit sales. Its average accounts payable is $1.5 million and it had $10 million in purchases. What is its Cash Conversion Cycle (CCC)? |
| Inventory Conversion Period | | | 243.33 | Inventory conversion period = Avg. Inventory / (COGS / 365) |
| Receivables Conversion Period | | | 121.67 | Receivables conversion period = Avg. Accounts Receivable / (Credit Sales / 365) |
| Payables Conversion Period | | | 54.75 | Payables conversion period = Avg. Accounts Payable / (Purchases / 365) |
| Cash Conversion Cycle | | | 310.25 | Inventory conversion period + Receivables conversion period – Payables conversion period |
| A company has a holding cost per unit of $5. Each order has a fixed cost of $8 and the annual demand quantity is 150,000 units. What is the company's optimal order quantity? (Round to closest whole unit) |
| Solution: | 693 | Q=square root of (2DS/H) |
| Q = order quantity, Q*= optimal order quantity, D = annual demand quantity, S = fixed cost per order (not per unit, typically cost of ordering and shipping and handling. This is not the cost of goods), H = annual holding cost per unit (also known as carrying cost) |
Shilpa Pakki
Module7.1AssignmentSolution.xlsx
