CHAPTER 8
WORKING CAPITAL MANAGEMENT
SOLUTIONS
1. B is correct.
Current ratio = Current assets/Current liabilities = Current assets/100 million = 2.5
Therefore, current assets =€250 million.
Therefore, inventory = €100 million.
2. C is correct.
Number of days of inventory =$2,300/($20,000/365) =41.975 days
Number of days of receivables =$2,500/($25,000/365) =36.5 days
Operating cycle = 41.975 + 36.5 days = 78.475 days
Note: The net operating cycle is 47.9 days.
Purchases=$20,000+$2,300−$2,000=$20,300
Number of days of payables=$1,700/($20,300/365)=30.567 days
The net operating cycle is 78.475−30.567=47.908 days.
3. A is correct.
Number of days of inventory=$2,000/($30,000/365)=24.333 days
Number of days of receivables=$3,000/($40,000/365)=27.375 days
Operating cycle=24.333+27.375 days=51.708 days
Purchases=$30,000+$2,000−$1,500=$30,500
Number of days of payables=$4,000/($30,500/365)=47.869 days
The net operating cycle is 51.708−47.869=3.839 days.
4. C is correct. Bond equivalent yield=[($10,000−9,725)/$9,725]×(365/182)=5.671%.
5. C is correct. A higher level of uncollectible accounts may occur, but a longer average collection period will certainly occur.
6. C is correct.
7. B is correct.
8. B is correct.
Company A: $1.0 million/($5.0 million/365)=73.0 days
Company B: $1.2 ...
