Questions regarding elements of net working capital

Reference no: EM1310804

Question regarding Analysis of elements of net working capital.

1. You're a supervisor in the treasury department of Big Corp. Recently there's been increasing concern about the firm's rising interest expense. Fred Eyeshade is an analyst in your group who transferred from the accounting department a short time ago. He has suggested that senior management mandate a 50% across the board cut in cash, inventory, and receivables along with a doubling of payables to reduce the firm's financing needs for net working capital. Explain why this might not be a good idea with respect to each of the elements of net working capital (four accounts).

2. Wildebrant Inc . runs out of inventory all the time both in the factory and the point in sale . However the company is profitable and no one worries about it much. Is this OK? What's probably going on that management doesn't see? What would you suggest to fix the problem?. How would it work?.

3. The Bailey Machine Tool Company thinks it can increase sales by 10 million by loosening its credit standards somewhat. The firm normally experiences bad debts of about 2% of sales, but marketing estimates that the incremental business would be from financially weaker customers who would not pay about 17% of the time. The firms gross margin is 18% (production-related costs are 82%of revenue)

Reference no: EM1310804

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