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Working capital managements, financial planning, discounts, APR

- Discuss the avenues to improve working capital management. Discuss the components of working capital and their effects on the firm's value.

- Discuss the importance and main avenues of cash management. Elaborate on the company's cash cycle, and how it differs from its operating cycle.

- List and discuss the main objectives of short-term financial planning.

- Discuss the methods of short-term financing.

1. Your supplier offers terms of 3/20, net 50. What is the effective annual cost of trade credit if you choose to forgo the discount and pay on day 50?

The effective annual cost is _________%

2. Your firm purchases goods from its supplier on terms of 2.0/10, net 35.
a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 35?
b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 35?

3. Which of the following one-year, $1000 bank loans offers the lowest effective annual rate?
a. A loan with an APR of 5.9%, compounded monthly.
b. A loan with an APR of 5.9%, compounded annually, with a compensating balance requirement of 9.8% (on which no interest is paid).
c. A loan with an APR of 5.9% compounded annually, with a 1.00% loan origination fee.
***must calculate each one and give answers then determine best one.

4. The Ohio Valley Steel Corporation has borrowed $5 million for one month at a stated annual rate of 9%, using inventory stored in a field warehouse as collateral. The warehouser charges a $5000 fee, payable at the end of the month. What is the effective annual rate of this loan?
Ohio Valley is paying an annual effective rate of ___% round to two decimals

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On the following just a paragraph will do:
• Discuss the avenues to improve working capital management. Discuss the components of working capital and their effects on the firm's value.
Working capital is all short-term, or current, assets—cash, marketable securities, inventories, and accounts receivable. Cash conversion cycle is used to calculate the length of time funds are tied up in working capital, or the length of time between paying for working capital and collecting cash from the sale of the working capital. Therefore, a combination of shorter timeframe for a company to sell the merchandise, shorter time for customers to pay for goods following a sale, and shorter time period for suppliers to pay its purchase will improve working capital management. With improved working capital management, the firm's value will increase.
• Discuss the importance and main avenues of cash management. Elaborate on the company's cash cycle, and how it differs from its operating cycle.
Cash is the sum of long-term debt, equity, and current liabilities minus current assets other than cash and fixed assets. Cash cycle differs from ...

Solution Summary

Working capital management, financial planning, discounts and APR are examined.

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