CHAPTER 16 WORKING CAPITAL POLICY AND SHORT-TERM FINANCING ANSWERS TO QUESTIONS: 1. The need for working capital arises because the normal operating cycle of the firm requires that expenditures for raw materials, labor, etc. be made prior to receipt of the funds from the sale of the output. Funds must be invested during the operating cycle in the various short-term assets that make up working capital--namely, cash, inventories, and accounts receivable. 2. The operating
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Ohio, it entered into a three-year revolving line of credit (the “Facility”) with its bank on January 1, 2015. Specific facts and circumstances are as followed: • The line of credit has a maximum borrowing capacity of $100 million, and under the terms of the agreement, all draws are considered to be due on demand. • On July 15, 2015, Buck drew $60 million on the Facility. • On August 30, 2015, Buck drew an additional $40 million on the Facility. • On September 30, 2015, Buck paid down the draws
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average). The key questions financial planning must answer are: What specific assets must the firm obtain to achieve its goal? How much additional financing will the firm need to acquire these assets? How much financing will the firm be able to generate internally and how much it obtain from external sources? When will the firm need to acquire external financing? What is the best way to raise these funds? The budgeting process provides financial managers with much of the information they need for financial
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financial statements of the company identify and explain the amount of financing sources the company have from the short term, intermediate and long term financing. Compare each of the financing sources to the company’s total amount of financing. 3. Based on your answers in Part 2 and the company’s financing requirements, identify and explain the company’s main source of financing. Evaluate the importance of the financing source and the effects on the company’s capital structure. Answer:
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CASE CONTEXT ➢ Short-term financing was used to acquire Tri-State Tablet Company • There were no substantial preparations and planning done during the time of Tri-State acquisition ➢ Padgett’s management is professional in terms of company operations and marketing but not financially oriented • lack of understanding of current structure of firm value • credit terms (2/10 net 30) were not efficiently working • Padgett and Caslon’s long time banking relationship hindered both party’s opportunity
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Questions 1. Calculate HBS's cash cycle for the fourth quarter Inventory Period= 90 / (1149.9 / 1302.1) = 101.91 Average collection period= 90 / (1543.9 / 1338.8) = 78.04 Average Payment Period= 90 / (1149.9 / 304.4) = 23.82 Cash Cycle= 101.91-78.04-23.82 = 156.13 (B) Explain the Meaning of your estimated. | 31/3 | 30/6 | 30/9 | 31/12 | IP | 171.7959 | 81.73759 | 65.3962 | 101.9123 | ACP | 80.67912 | 78.71666 | 56.2496 | 78.04391 | APP | 63.78734 | 44.73063 | 21.33667 | 23.82468
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into a finance lease it is receiving admittance to the risks and payments of the asset and therefore the lessee reflects substance by knowing the asset in its individual accounts. Discuss the terms short-term borrowing and long-term financing. Short-Term borrowing As is understandable in the name, short term borrowing is a form where borrowing duties that must be satisfied frequently within a year to two at most. It is more frequently used for occupied capital necessities, or day-to-day processes
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of net working capital, profitability, and risk in managing the firm's current liability accounts. The management of current liabilities requires choosing appropriate levels of financing and involves trade-offs between risk and profitability. This chapter also reviews sources of secured and unsecured short-term financing, including the role of international loans. Spontaneous sources, such as accounts payable and accruals, are differentiated from negotiated bank sources, such as lines of credit.
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Lawrence Sports can implement an aggressive approach as an alternative working capital policy. This policy uses less long term and more short-term financing (Emery, Finnerty & Stowe, 2007). Short -term financing is more cost efficient with comparison to the long term financing. Lawrence Sports would experience a profit increase under this policy. This approach has high risk and often high return, as we know from the principle of Risk-Return Trade-Off that without some sort of market imperfection
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Debt Vs. Equity Financing Paper Scarlett Halifax Accounting 400 March 25, 2013 Mrs. Marissa Portugal The last five weeks, we have learned many different principles in accounting. One of the most important principles we have learned in that of the different types of financing that are available to corporations. This paper will look at leasing versus purchasing and Debt versus equity financing. To understand and make the right decisions in financing, it is wise to look at your company’s
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