Answer for Tutorial 3
Fin 3000 – Managerial Finance
September 2012/2012
Problems:
14-1 Net Working Capital Requirements JohnBoy Industries has a cash balance of $45,000, accounts payable of $125,000, inventory of $175,000, accounts receivable of $210,000, notes payable of $120,000, and accrued wages and taxes of $37,000. How much net working capital does the firm need to fund? (LG2)
NWC = CA – CL = ($45,000 + $210,000 + $175,000) – ($125,000 + $120,000 + $37,000) = $148,000.
14-3 Days’ Sales in Inventory Dabble, Inc., has sales of $980,000 and cost of goods sold of $640,000. The firm had a beginning inventory of $36,000 and an ending inventory of $46,000. What is the length of the days’ sales in inventory? (LG3)
Days’ sales in…show more content… Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (LG3)
Using equation 14-1:

Using this, in turn, in equation 14-2: 14-19 Optimal Cash Replenishment Level Rose Axels faces a smooth annual demand for cash of $5,000,000, incurs transaction costs of $275 every time they sell marketable securities, and can earn 4.3 percent on their marketable securities. What will be their optimal cash replenishment level? (LG8)
The optimal cash replenishment level will be:

14-21 Optimal Cash Return Point HotFoot Shoes would like to maintain their cash account at a minimum level of $25,000, but expect the standard deviation in net daily cash flows to be $4,000, the effective annual rate on marketable securities to be 6.5 percent per year, and the trading cost per sale or purchase of marketable securities to be $200 per transaction. What will be their optimal cash return point? (LG8)
The daily interest rate on marketable securities will be equal to:

And the optimal cash return point will be equal to:

14-23 Optimal Upper Cash Limit Veggie Burgers, Inc., would like to maintain their cash account at a minimum level of $245,000, but expect the standard deviation in net daily cash flows to be $12,000, the effective annual rate on marketable securities to be 3.7 percent per year, and the trading cost per sale or purchase of marketable securities to