Calculated the net working capital, Cost Accounting

                                    Balance Sheet

                                                                     2010               2011           


Cash                                                              $166,800       $151,000      

Prepaid expenses                                            81,000            73,000           

Accounts receivable                                        19,500            45,000       

Inventory                                                      19,300            30,000       

Long term investment                                     15,000            35,000       

Capital assets                                                461,500          480,000       

Accumulated amortization                              (101,500)      (105,000)        

Total Assets                                                  $661,600       $709,000

Liabilities and Shareholders' Equity

Accounts payable                                          $37,100          $55,000    

Accrued wages                                               15,000          25,000        

Mortgage payable                                          232,000         232,000       

Common shares                                            273,000          273,000       

Retained earnings                                         104,500         181,000       

Total liabilities and shareholders' equity         $661,600       $709,000

Other information:

Sales                                                          1,895,080     2,018,395

Net Income                                                 530,000         612,000

Amortization                                               65,000           65,000


a) Calculated the net working capital for 2010 and 2011

b) Calculate the days of working capital for 2010 and 2011

c) Calculate the companies cash conversion ratio for 2011

d) The company is considering changing its credit policy from net 30 to net 60 days.   The company wants to maintain a return on assets of at least 15%.  Would you recommend the change?

Provided below is information on 2011 operating results hypothetically altered to what would happen under the new policy.

Sales                                                            2,300,000

Net Income                                                   650,000

Accounts receivable                                       105,000

Total assets                                                   789,000

e) The company's current annual purchases are 1,000,000, and current purchasing policy is 30 days.  How much cash would it generate if it negotiated a 40 day policy?

Posted Date: 3/8/2013 4:03:38 AM | Location : United States

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