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$15.00 Accounting Concepts & Applications and Fundamentals of Corporate Finance
Q:Hello out there!
Please assist me with the following finance/accounting exercises:
WORKING CAPITAL MANAGEMENT. INDICATE HOW EACH OF THE FOLLOWING SIX DIFFERENT TRANSACTIONS THAT DYNAMICS MATTRESS MIGHT MAKE WOULD AFFECT (i) CASH AND (ii) NET WORKING CAPITAl:
(answsers should have two columns - and Net Working Capital and the amounts positive or negative or no change)
a. PAYING OUT A $2 MILLION CASH DIVIDEND.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investng the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.
CASH CONVERSION CYCLE. WHAT EFFECT WILL THE FOLLOWING EVENTS HAVE ON THE CASH CONVERSION CYCLE?
(ANSWER SHOULD SAY CLEARLY EITHER SHORTEN OR LENGTHEN CASH CONVERSION CYCLE AND WHY)
a. HIGHER FINANCING RATES INDUCE THE FIRM TO REDUCE ITS LEVEL OF INVENTORY.
b. THE FIRM OBTAINS A NEW LINE OF CREDIT THAT ENABLES IT TO AVOID STRETCHING PAYABLES TO ITS SUPPLIERS.
c. THE FIRM FACTOS ITS ACCOUNTS RECEIVABLE.
d. A RECESSION OCCURS, AND THE FIRM'S CUSTOMERS INCREASINGLY STRETCH THEIR PAYABLES.
PAYMENT LAG. THE LAG BETWEEN PURCHASE DATE AND THE DATE AT WHICH PAYMENT IS DUE IS KNOWN AS THE TERMS LAG. THE LAG BETWEEN THE DUE DATE AND THE DATE ON WHICH THE BUYER ACTUALLY PAYS IS TERMED THE DUE LAG, AND THE LAG BETWEEN THE PURCHASE AND ACTUAL PAYMENT DATES IS THE PAY LAG. THUS.
PAY LAG = TERMS LAG + DUE LAG
STATE HOW YOU WOULD EXPECT THE FOLLOWING EVENTS TO AFFECT EACH TYPE OF LAG:
a. THE COMPANY IMPOSES A SERVICE CHARGE ON LATE PAYERS.
b. A RECESSION CAUSES CUSTOMERS TO BE SHORT OF CASH.
c. THE COMPANY CHANGES ITS TERMS FROM NET 10 TO NET 20.
WHY IS THE TIME VALUE OF MONEY SO IMPORTANT IN CAPITAL BUDGETING DECISIONS?
