Working Capital Analysis

Task1. Capers, Inc. has just prop up you to Chief financial officer. Because this is a new office in the company, you are undermanned and many of the responsibilities have been allocated to you.

The first task you have been assigned concerns the cash conversion cycle. Your boss has asked that you inspect the following data:

i) Inventory conversion period is sixty Days

ii) Payables deferral period is thirty days

iii) Receivables collection period of forty days

The second task concerns the cost of bank loans under differing conditions. Specifically:

i) The company requires $1,500,000 for a new project.

ii) The loan will cost 10% simple interest, for four months, with a 20% compensating balance.

Required:

problem1. What is firm’s cash conversion cycle?

problem2. How many times per year are firm’s inventory turnover, when sales are $4,000,000 per year?

problem3. When sales are all credit sales and amount to $4,000,000 per year, what is firm’s average investment in receivables?

problem4. What is nominal interest rate on the loan?