Casa de Diseno Essay

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Integrative Case 7, Casa de Diseno, involves evaluating working capital management of a furniture manufacturer. Operating cycle, cash conversion cycle, and negotiated financing needed are determined and compared with industry practices. The student then analyzes the impact of changing the firm’s credit terms to evaluate its management of accounts receivable before making a recommendation.
a. Operating cycle (OC) average age of inventory  average collection period  110 days  75 days  185 days Cash conversion cycle (CCC) OCaverage payment period 185 days30 days 155 days Resources needed   $11,253,425

B. Industry OC 83 days  75 days 158 days Industry CCC 158 days39 days
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f. The other sources of financing available include both unsecured and secured sources.
Unsecured Sources:
• Short-term self-liquidating bank loans—usually used to help with seasonal needs where the loan is repaid as receivables are collected.
• Single-payment bank notes—normally a short-term (30 days to 9 months) loan to be repaid on the end of the loan period.
• Line of credit—a loan much like a credit card in that the borrower can draw down the money as needed and make various payments. The loan must often be paid in full at some point within each year.
• Revolving credit agreement—a guaranteed amount of funds available to the borrower. The borrower usually pays a commitment fee to the bank to compensate them for having the funds available “on demand.”
• Commercial paper—a 3-day to 270-day loan sold as a security to the lender.
Secured Sources:
• Pledging accounts receivable—a lender loans money on the basis of the creditworthiness of the borrower’s customers who bought on account. The lender advances the money to the borrower in an amount discounted from the book value of the receivables. When the borrower collects the receivables payments, the money is remitted to the lender.
• Factoring accounts receivable—selling the firm’s accounts receivable to a lender at a discount to the book value of the receivables. The factor normally receives the payment directly from
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