Question 1: Working Capital Management.
Indicate how each of the following six different transactions that Dynamic Mattress might make would affect (i) cash and (ii) net working capital:
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 investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.
Question 5: Managing Working Capital.
A new computer system allows your firm to more accurately monitor inventory and anticipate future inventory shortfalls. As a result, the firm feels more able to pare down its inventory levels. What effect will the new system have on working capital and on the cash conversion cycle?
Discussion Question 3 (Ch. 22) of Accounting Concepts and Applications© BrainMass Inc. brainmass.com June 4, 2020, 12:38 am ad1c9bdddf
The solution answers how different transactions will affect firms working capital & Why is the time value of money so important in capital budgeting decisions.