Question

W.7- (8)

Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The table shown here, contains financial forecasts as well as current (month 0) working capital levels. During which month is the firm's change in net working capital the greatest? When does it have surplus cash? We calculate the changes in net working capital for the firm: (Round to two decimal places.)

($000)	0	1	2	3	4	5	6
Net Income		$10.14	$11.83	$15.08	$25.01	$30.05	$17.86
Depreciation		2,09	3,07	2,98	3,94	4,97	3,98
Capital Expenditures		1,18	0	0	1,18	0	0
Levels of Working Capital
Accounts Receivable	$1.92	$2.94	$3.92	$5.09	$7.01	$10.09	$5.97
Inventory	3,04	2,08	3,92	5,05	5,07	4,07	1,91
Accounts Payable	1,95	1,95	1,95	1,95	1,95	1,95	1,95
(000)                               1 Change in accounts receivable……………….$                        Change in inventory-------$        Change in accounts payable----------------------$                            Change in net working capital---------------------- $

W.7 (9)

Quarterly working capital levels for your firm for the next year are included in the following table. What are the permanent working capital needs of your company? What are the temporary needs? Quarter (000) 1 2 3 4 Cash $100 $100 $100 $100 Accounts Receivable 197 103 104 596 Inventory 201 498 896 54 Accounts Payable 103 100 100 97 What are the permanent working capital needs of your company? The permanent working capital needs of your company are $ ---------. (Round to nearest dollar.)

Answer 1

W.7(8)

($000)	Formula Used	0	1	2	3	4	5	6
Accounts Receivable		1.92	2.94	3.92	5.09	7.01	10.09	5.97
Inventory		3.04	2.08	3.92	5.05	5.07	4.07	1.91
Accounts Payable		1.95	1.95	1.95	1.95	1.95	1.95	1.95
(000)                               1
Change in accounts receivable……………….$	= Month(i+1) - Month(i)		1.02	0.98	1.17	1.92	3.08	-4.12
Change in inventory-------$	= Month(i+1) - Month(i)		-0.96	1.84	1.13	0.02	-1.00	-2.16
Change in accounts payable----------------------$	= Month(i+1) - Month(i)		0.00	0.00	0.00	0.00	0.00	0.00
Change in net working capital---------------------- $	= Sum of changes in all accounts		0.06	2.82	2.30	1.94	2.08	-6.28

From the table it can be seen that Sailboat's change in net working capital is the highest in Month 2 .

($000)	Formula Used	0	1	2	3	4	5	6
Net Income			10.14	11.83	15.08	25.01	30.05	17.86
Depreciation			2.09	3.07	2.98	3.94	4.97	3.98
Changes in net working capital			0.06	2.82	2.3	1.94	2.08	-6.28
Cash flow from operations	= Net income + Depreciation - Changes in net working capital		12.17	12.08	15.76	27.01	32.94	28.12
Capital Expenditures			1.18	0	0	1.18	0	0
Change in cash	= Cash flow from operations - Capital expenditures		10.99	12.08	15.76	25.83	32.94	28.12

Sailboats has a surplus cash position in every month.

W.7(9)

Quarter		1	2	3	4
Cash (in thousands)		100	100	100	100
Accounts Receivable (in thousands)		197	103	104	596
Inventory (in thousands)		201	498	896	54
Accounts Payable (in thousands)		103	100	100	97
Working Capital Need	= Cash + Accounts Receivable + Inventory - Accounts Payable	395	601	1000	653

The permanent working capital need is $ 395,000

Temporary working capital need is given below

Quarter	1	2	3	4
Working Capital Need	395	601	1000	653
Permanent Working Capital Need (in '000)	395
Temporary Working Capital Need(in '000)		206	605	258