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1) Auction Metal Products (AMP) has demanded working capital loan from your bank and has given the data. Use this information to reply problems a through d.

Assets Liabilities + Equity
cash $ 120,700 accounts payable $349,100
accounts receivable 592,000 accrued expenses 112,500
inventory 378,100 notes payable: bank 171,000
fixed assets (net) 673,700 current maturity: LT debt 100,000
long-term debt 500,000
stockholders’ equity 531,900
Total $1,764,500 Total $1,764,500
Average daily sales = $23,600
Average daily cost of goods sold = $16,490
Average daily purchases = $15,030
Average daily operating expense = $ 8,800

a) Compute AMP’s asset cash-to-cash cycle. Illustrate all work.

b) Compute AMP’s liability cash-to-cash cycle. Illustrate all work.

c) Given your calculations, how much does AMP require in working capital financing? Illustrate all work.

d) Suppose that AMP eliminates 10% discount if offers to customers if they pay within 10 days. As result, accounts receivable outstanding increases by 50%. Compute and describe the effect this change will have on AMP’s borrowing needs?

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