assignment

Questions and problems for Module5

1. Wal-mart’s working capital

a. Please construct a working capital statement for Wal-Mart based on the most recent financial statements available.(12 points)

b. What is their liquidity ratio? (3 points)

c. What is their inventory turnover ratio? (3 points)

2. Joe Fellows is attempting to categorize several items from his company’s financial statements so he can determine his working capital. Joe notices the following categories of accounts and amounts:

· cash, $ 3,500;

· accounts payable, $ 10,200;

· accounts receivable, $ 15,000;

· sales taxes due the city of Phoenix, $ 750;

· sales taxes due the Arizona Department of Revenue, $ 3,450;

· inventory, $ 17,500;

· wages payable, $ 5,350;

· taxes payable ( federal), $ 2,570;

· money market fund,$ 12,300;

· and computer, $ 3,400.

a. List accounts classified as current assets and as current liabilities. (10 points)

b. Determine the amount of gross working capital. (3 points)

c. Determine the amount of net working capital. (3 points)

d. What is Joe’s current ratio? (3 points)

3. Larry’s Lawn Equipment Company gives terms of 2/ 10, n/ 30. Larry has annual credit sales of $ 500,000 and average accounts receivable of $ 60,000.

a. What is Larry’s accounts receivable turnover? (3 points)

b. What is Larry’s average daily collection? (3 points)

c. Are you better off taking the cash discount, paying on time, or paying late and does your answer differ if you are taking on debt to make the payments? (10 points)

4. Describe a way that a business can improve their accounts receivable turnover (be detailed and include reference material)? (12 points)

5. Bernie’s Bike Shop receives the following trade discounts: 35/ 25/ 15. The vendor’s price list indicates that 35 percent off list price is for purchasing bikes in quantities of 100 or more, 25 percent off list price is for assembling the bikes for customers, and 15 percent is for sales promotion and local advertising.

a. If the manufacturer’s list price is $ 470, what should Bernie pay for each bike if he orders 110 bikes at a time, assembles the bikes, and displays and advertises them? (5 points)

b. What is Bernie’s single equivalent discount rate? (5 points)

c. How much will Bernie pay the manufacturer for each bike if he orders 10 bikes at a time and takes advantage of the other discounts? (5 points)

6. If Bernie, from above, is given terms of 4/ 15, n/ 30, and he pays by day 15.

a. How much will he pay the manufacturer for the order of 110 bikes? (5 points)

b. If Bernie has a cash flow problem and waits until day 30 to pay the manufacturer, what is his

effective cost of financing for the year? (5 points)

c. Are cash terms better for the buyer or seller (be detailed in your answer)? (10 points)

Please make sure you show me how you arrived at your calculations.