...Working Capital Management: Analysis Project #1 Fall, 2012 Dr. Echevarria Cameron School of Business Working Capital Management Project The WCM project is an exercise using an enhanced cash budget to make changes to operating parameters in order to observe the impact on the pro forma income and balance sheet statements. The exercise uses an MS Excel spreadsheet. There are several management strategy options that will be simulated in order to gauge the results on operating cash flows and profitability. You task will be to analyze each option and determine which options will improve profitability. Your analyses will be written using a MS-Word document. Copy and paste from the spread sheet only the 6 [green] cells containing the Changes in Operating Income, Net Profit Margin, and Net Income. Label the word document as follows: LASTNAME_WCM.doc and email assignment to davidpe@charter.net. The assignment is due by midnight (Sunday), September 30, 2012. Background The Reliant Electrical Systems, Inc (RES) was started in 1967 to produce standby home power generators in the 12 to 15 Kilo-Watt peak output range (100 - 125 Amps at 120 volts AC). RES sells the generators to electrical equipment retailers and to home improvement outlets such as Home Depot and Lowes. In addition, a number of units are sold to small construction companies as well as state and federal agencies. The main facility is a 150,000 square foot building located in Richardson, Texas. This building...
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...RUNNING HEAD: Working Capital Management Integrated Project Assignment 2: Working Capital Management Claudio Cordon Strayer University March 11th, 2012 A1. The sales staff believes RES can increase the FOB price by $125.00 per unit. This increase in price is expected to decrease sales by 2.5%. [Hint: Increase B3 by $125. Enter -2.5 in cell B66.] The cash balance increased to $8,602,692 at the end of 2012 based on the projection of increasing the price by $125 even though sales decreased by 2.5%. Tho OI increased from 9.7M to 12.9M. The change in price will move NPM from 4% to 6.39% and NI from 3.4M to5.5M. This can be a good solution for the company to be successful in 2012. |Chg in OI |Performance Measures |Current |With Changes |Change Magnitude | | $3,273,175 |Current Ratio |4.93 |5.52 |0.59 | |NPM |Quick Ratio |3.74 |4.32 |0.59 | |6.39% |Defensive Interval |81.57 |93.79 |12.22 | |Chg in NI |Times Interest Earned |2.82 |3.98 |1.17 | |$2,169,025 |Gross Profit Margin |30.39%...
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...Project Report (Submitted for the Degree of B.Com. Honours in Accounting & Finance / under West Bengal State University, Barasat) Title of the Project WORKING CAPITAL MANGEMENT IN MARUTI SUZUKI INDIA.LTD Submitted by Name of the Candidate: TANUMOY ROY Registration No. : 13611131114020870 OF 2011-12 Name of the College: RBC EVENING COLLEGE College Roll No: 21 Supervised by Name of the Supervisor MR RANJIT KUMAR DUTTA Name of the College: RBC EVENING COLLEGE Month & Year of Submission FEB 2014 ACKNOWLEDGEMENT I would like to thank our head of the department (HOD) Mr. Ranjit Kumar Dutta, for giving necessary support during the course. Chapter No. | Particulars | Page No. | 1. | INTRODUCTION | 4-7 | 2. | AUTOMOBILE INDUSTRY SCENARIO IN INDIA | 8 | 3. | PRESENTATION OF DATA, ANALYSIS, FINDING | 9-11 | 4. | CONCLUSION,RECOMMENDATION,LIMITATION | 12 | 5. | BIBLOGRAPHY AND REFERANCES | 13 | 6. | SUPERVISER CERTIFICATE | 14 | 7. | STUDENT DECLARATION | 15 | CONTENTS INTRODUCTION 1.1CONCEPT OF WORKING CAPITAL The term working capital is used to mean that proportion of working capital of a business which is employed in short Term or current operations. There are two type of working capital: gross and net. Gross working capital is the sum total of all current asset, while net working capital is the difference between current asset and current liabilities. IMPORTANCE OF WORKING...
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...directors of Metaland decided to carefully evaluate the financial worthwhileness of manufacturing this model which they have labeled Meta 4. You have been recently hired as the executive assistant to Vijay Mathur, Managing Director of Metaland. Vijay Mathur has entrusted you with the task of evaluating the project. Meta 4 would be produced in the existing factory which has enough space for one more product. Meta 4 will require plant and machinery that will cost Rs.400 million. You can assume that the outlay on plant and machinery will be incurred over a period of one year. For the sake of simplicity assume that 50 percent will be incurred right in the beginning and the balance 50 percent will be incurred after 1 year. The plant will commence operation after one year. Meta 4 project will require Rs.200 million toward gross working capital. You can assume that gross working capital investment will occur after 1 year. The proposed scheme of financing is as follows : Rs.200 million of equity, Rs.200 million of term loan, Rs.100 million of working capital advance, and Rs.100 million of trade credit. Equity will come right in the beginning by way of retained earnings. Term loan and working capital advance will be raised at the end of year 1. The term loan is repayable in 8 equal semi-annual instalments of Rs.25 million each. The first instalment will be due after 18 months of raising the term...
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...the company’s capital investment proposals for the coming year, and have so far received three project proposals, the details of which are given below. The company’s opportunity cost of capital is 12% pa. Project A will incur initial capital costs of £32,000 and expected to earn the following net cash inflows: 1st Year £10,000 2nd Year £13,000 3rd Year £14,000 4th Year £10,000 The capital equipment purchased at the start of the project can be resold for £6,000 at the end of the fourth year. No working capital is needed. Project B would involve an initial outlay of £40,000 on capital equipment and £15,000 on working capital. The annual net cash inflows from the project are estimated as follows: | | | |1st Year |£20,000 | |2nd Year |£17,000 | |3rd Year | £8,000 | At the end of the third year, the working capital investment should be recovered, and the equipment would be sold for £3,000. Project C requires an investment outlay of £50,000 on equipment and £10,000 on working capital. The investment in working capital has to be increased to £12,000 as from the second year. Annual net cash flows would be £15,000 per annum for six years, at the end of which only the investment in working capital would be recovered. Required: A) Compute the NPV of each project, and determine...
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...The project mainly focuses in detail the Financial Ratios and also understanding of the working capital management of IRCTC. This report will analysis and describe different ratios and how it manages its working capital. “It is meaningless to financially analyse a company without understanding the context and environment in which it operates”. As IRCTC has its monopoly in Indian Railways, so we will take a close look to intra firm analysis. A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a study of ratios between various items or groups of items in financial statements. Ratios can be classified according to statements mainly they are profit and loss ratios or income statement ratios, balance sheet ratios or position statement ratios, mixed ratio or inter statement ratios The ratios are calculated with the help of Annual report of IRCTC provided by the company; the data of last five financial years has been used for that. The project begins with the discussion about the scenario of Indian Railway and role of IRCTC in that. The project then describes the main concept- Ratios and their analysis by determining that why the ratios have changed, which can be due to the change in the accounting policies without a material change in the firm’s performance. The focus of the project then shifts to Working capital which is concerned with the problems that arise in attempting to manage current assets, the current liabilities and the interrelationship...
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...PROJECT REPORT (Submitted for the degree of B.com Honours in Accounting & Finance under CalcuttaUniversity) ON WORKING CAPITAL MANAGEMENT SUBMITTED BY Name of the Candidate: Registration No. : Roll No. : 0498 Name of the College: Bhawanipur Education Society College Name of University: Calcutta University Submitted on: February 2013 SUPERVISED BY Name of the Supervisor: Name of the College: Annexure- I Supervisor's Certificate This is to certify that Ms. a student of B.Com. Honours in Accounting & Finance ofBHAWANIPUR EDUCATION SOCIETY COLLEGE under the University of Calcutta has worked under mysupervision and guidance for her Project Work and prepared a Project Report with the title “WORKING CAPITAL MANAGEMENT ” which she is submitting, is her genuine and original work to the best of my knowledge. Place: Kolkata Prof. Date: February, 2013 . Annexure- II Student's Declaration I hereby declare that the Project Work with the title “WORKING CAPITAL MANAGEMENT”submitted by me for the partial fulfilment of the degree of B.Com. Honours in Accounting & Finance under the University of Calcutta is my original work and has not been submitted earlier to any other University /Institution for the fulfilment of the requirement for any course of study. I also declare that no chapter of this...
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...TABLE OF CONTENT ACKNOWLEDGEMENTS 2 1. COLEMAN SYSTEM BACKGROUND INFORMATION 4 2. COST OF CAPITAL FOR COLEMAN SYSTEMS 5 2.1 Calculate cost of debt (rd) 5 2.2 Calculate ratio debt/capital and equity/capital in market value terms 6 2.3 Calculate Beta (β) for Coleman Systems 8 2.4 Calculate Cost of Equity 10 2.5 Calculate the weighted average cost of capital for Coleman Systems 10 3. THE WACC AND PROJECT VALUES FOR DIFFERENT DEBT – EQUITY RATIOS AND THE OPTIMAL CAPITAL STRUCTURE FOR THE PROJECT 11 3.1 Case 1: No bankruptcy risk without tax 11 3.2 Case 2: No bankruptcy risk with tax 13 3.3 Case 3: With bankruptcy risk with tax 15 4. DISCUSSION ON AGENCY AND SIGNALLING EFFECT 18 5. REPLACEMENT PFOJECT 21 5.1 Replacing Machine A with Machine B 21 5.2 Replacing Machine A with Machine C 26 6. UNDERTAKE A SENSITIVITY ANALYSIS FOR THE TWO PROJECTS. 31 REFERENCES 34 SEMESTER 2013 CORPORATE FINANCE–BMCF5103 ASSIGNMENT (60%) 1. COLEMAN SYSTEM BACKGROUND INFORMATION Coleman Systems is a private manufacturing company that makes electrical components. We have the following information about Coleman, as well as three listed companies in the electronics industry. |Term |Coleman |Skye |Allied |Foust | |Book value of assets (£m) ...
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...Discussion Questions Discussion Questions How do you define working capital? What may happen if an organization neglected to manage its working capital? What techniques do you recommend for your organization? Why? * * The equation for working capital is assets minus liabilities. Anything below 1 indicates negative working capital. If a company neglects maintaining their working capital, they run the risk of being in debt or even going bankrupt. Some techniques organizations due to ensure they have a good amount of working capital is ensuring they are paid on time (accounts receivable). In addition, it is also important they are paying their creditors on time. Last, it is important to invest any excess cash to maximize profitability. * What is capital planning? Why is the internal rate of return important to an organization? Why is net present value important to a project? How do you select from multiple projects presented to your organization? * * Capital planning is the process of planning for the future or replacing equipment. When capital planning, it is important to take the value of money into consideration. Thus, will the product or equipment have a higher return? In addition, will the product or the project retain its value in the foreseeable future? Another reason why the internal rate of return is important, is because it tells the organization if the risk of the investment. Net present value is taken into consideration when investing because...
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...DQ1 How would you define working capital? I would define working capital as short term decisions relating to the next one year period which can be reversible. Working capital can ensure that the firm can continue its operations, and to see if there is sufficient money flow to satisfy both maturing short term debt and upcoming operational expenses. What could happen if an organization neglected to manage its working capital? If an organization neglected to manage its working capital. The organization could make decisions that could cost them if the working capital is not managed right. The organization could be in real trouble. What techniques would you recommend for your organization? I think I would use cash because it will allow the business to meet the day to day expenses but it could reduce cash holding costs. Inventory can allow for uninterrupted production and reduce the investment in raw materials. Debtors will attract customers that might impact cash flows and cash conversion cycle will off set by the increase revenue and return on capital. DQ2 What is capital planning? Capital planning is the process used to determine whether a firms long term investments (which are new machinery, replacement machinery, new plants and products) all these has to return more than what the company is paying for it over the long term. What is the internal rate of return important to an organization? Internal rate of return is important to an organization...
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...Hollister is considering a new project. The project will require $535,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt is expected to increase by $165,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $875,000 and costs of $640,000. The tax rate is 31 percent and the required rate of return is 14 percent. What is the amount of the aftertax cash flow from the sale of the fixed assets at the end of this project? A. | $35,496 | B. | $73,830 | C. | $104,400 | D. | $287,615 | E. | $344,520 | Aftertax salvage value = $535,000 × 0.20 × (1 - 0.31) = $73,830 | | 2. | Hollister & Hollister is considering a new project. The project will require $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt is expected to increase by $165,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original...
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... We focus on free cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest. Only by examining cash flows are we able to correctly analyze the timing of the benefit or cost. Also, we are only interested in these cash flows on an after tax basis as only those flows are available to the shareholder. In addition, it is only the incremental cash flows that interest us, because, looking at the project from the point of the company as a whole, the incremental cash flows are the marginal benefits from the project and, as such, are the increased value to the firm from accepting the project. 2. Although depreciation is not a cash flow item, it does affect the level of the differential cash flows over the project’s life because of its effect on taxes. Depreciation is an expense item and, the more depreciation incurred, the larger are expenses. Thus, accounting profits become lower and in turn, so do taxes which are a cash flow item. 3. When evaluating a capital budgeting proposal, sunk costs are ignored. We are interested in only the incremental after-tax cash flows, or free cash flows, to the company as a whole. Regardless of the decision made on the investment at hand, the sunk costs will have already occurred, which means these are not incremental cash flows. Hence, they are irrelevant. Solution to Integrative...
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...A Project Study Report On Training undertaken at KEC INTERNATIONAL LTD. Titled “Improvement of Working Capital Management by Bringing Efficiency in Billing Process” Submitted in partial fulfillment for the award of the degree of Bachelor of Business Administration In Lieu of Paper 306 Under The Supervision Of Submitted by:- Mr. P.C.Janghir Sugandha Sethia BBA III Yr 2011-2012 BIYANI GROUP OF COLLEGE, JAIPUR UNIVERSITY OF RAJASTHAN CERTIFICATE BY PROJECT GUIDE This is to certify that Ms.Sugandha Sethia student of BBA part III of Biyani Girls College,Jaipur has prepared this project entitled “Improvement of Working Capital Management by Bringing Efficiency in Billing Process” under my supervision. She has prepared report on the basis basis of training...
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...CHAPTER 8 Making Capital Investment Decisions I. DEFINITIONS INCREMENTAL CASH FLOWS a 1. The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows. a. incremental b. stand-alone c. after-tax d. net present value e. erosion Difficulty level: Easy EQUIVALENT ANNUAL COST e 2. The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost. a. incremental b. sunk c. opportunity d. erosion e. equivalent annual Difficulty level: Easy SUNK COSTS c 3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. d. opportunity cost. e. erosion cost. Difficulty level: Easy OPPORTUNITY COSTS d 4. The most valuable investment given up if an alternative investment is chosen is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. d. opportunity cost. e. erosion cost. Difficulty level: Easy EROSION COSTS e 5. The cash flows of a new project that come at the expense of a firm’s existing projects are called: a. salvage value expenses. b. net working capital expenses. c...
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...LEASE FINANCING Lease finance or lease financing means contract between owner of asset and user of asset. In this contract only rent is paid at periodical intervals for using of asset by user. If user of asset has no money to pay initial amount of leasing contract, he can also do contract with third part to pay initial amount or specific period rent of lease. Importance of Lease Financing: 1. Lease finance is easy to get than getting loan for buying all fixed assets. 2. Monthly rent payment for lease finance will be operating expenses. It will be allowed to deduct total income. So, company can get tax benefits in lease financing. 3. It can show as invisible debt of company out of its balance sheet. You can show lease finance in the footnote of balance sheet, if you did contract directly with the owner of asset. 4. One of major important point is that it is more flexible way of finance. You can fix your need of asset and get it one lease through lease financing. 5. A study from IFC [PDF] has revealed that 30% of total share of lease financing as investment of fixed asset is of emerging and developed economies and now 15% of developing countries. RETAIL BANKING Retail banking is a major form of commercial banking but mainly targeted to consumers rather than corporate clients. It is the method of banks' approach to the customers for sale of their products. The products are consumer-oriented like offering a car loan, home loan facility...
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