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    Working Capital Management

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    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

    3. Why is the time value of money so important in capital budgeting decisions?

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    Solution Summary

    The solution answers how different transactions will affect firms working capital & Why is the time value of money so important in capital budgeting decisions.