- 15 Marks
FM – NOV 2015 – L2 – Q2a and Q2b – Working Capital Management
Identify types of working capital policies and determine the additional working capital needed by This Way Ltd for an EDAIF grant application.
Question
a. A good working capital policy should facilitate successful achievement of the key short-term financing objectives of an organization.
Required:
Identify the three types of working capital policies of an organization. (5 marks)
b. This Way Ltd is preparing a business plan to apply for a grant from EDAIF for an expansion of its rice production. Current production is 20,000 bags at a variable cost per bag of GHS12.00 and contribution sales ratio is 25%. Variable cost is for purchases. Current receivable days is 30 days and inventory turnover is 12 times. Suppliers allow 15 days credit and the company maintains an absolute cash ratio of 1:1.
The funding support from EDAIF is expected to double the production capacity of the company. Inventory and absolute cash ratios would be maintained but receivables and payables days will increase to 45 days and 30 days respectively. EDAIF policy is to support only the extra working capital needs of applicants.
Required:
Determine the amount that should be applied from EDAIF. (10 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cash Ratio, Funding, Payables, Receivables, Working Capital Policy
- Level: Level 2
- Topic: Working Capital Management
- Series: NOV 2015