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Working Capital and Current Assets Management

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Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that customers' payments were in the mail an average of 2.5 days. Once received, the payments are processed in 1.5 days. After payments are deposited, it takes an average of 3 days for these receipts to clear the banking system.

a. How much collection float (in days) does the firm currently have?
b. If the firm's opportunity cost is 11%, would it be economically advisable for the firm to pay an annual fee of $16,500 to reduce collection float by 3 days? Explain why or why not.

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a. How much collection float (in days) does the firm currently have?
Currently firm is having following float:
= Duration of Mail + Processing + ...

Solution Summary

Solution solves problem related to collection floats.

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Working capital management and Operating cycle

Two companies, A and B, have the following balance sheet accounts:
Current assets $ 150 $ 800
Fixed assets 300 2200
Current liabilities 75 600
Long-term debt 75 1000
Equity 300 1400
a. Compute values for all of the ratios that measure
working capital for firms A and B.
b. Compare Firm A to B with regards to its need for
working capital and how it finances its working capital
(short-term vs. long-term financing).

2. The Latigo Company has the following financial information:
Sales $200
Cost of goods sold 100
Administrative expense 44
Depreciation 40
Interest expense 2
Tax 7
Net profit $ 7
Cash $ 5
Accounts receivable 20
Inventory 25
Fixed assets 50
Accounts payable 5
Note payable 15
Long-term debt 20
Equity 70
a. The current assets to sales ratio for the industry is 0.20. State whether Latigo make more or less use of working capital than the industry.
b. Compute the working capital turnover for Latigo and for the industry.
c. Compute the operating cycle and the cash conversion cycle for Latigo.
d. The industry average cash conversion cycle is 112 days. Compare the industry to Latigo and identify any inferences that you can make.

RATIO 0.25
It is utilizing working capital less efficiently as it has got higher ratio then the industry.
The lower the current-assets to-sales ratio, the less a firm needs to invest in working capital
to generate a dollar of sales, which usually means that the firm is utilizing its working capital in a more resourceful manner.

b. Compute the working capital turnover for Latigo and for the industry.

I need help with questions 1 and 2 in the problem section at the back of the attached chapter. I need all solutions in Microsoft excel along with the written answers to the questions.

(See attached file for full problem description)

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