The table below gives information extracted from the annual accounts of Make-it (Pty) Ltd for the past two years. Make-i
Posted: Wed May 18, 2022 10:50 pm
The table below gives information extracted from the annual
accounts of Make-it (Pty) Ltd for the past two years. Make-it (Pty)
Ltd: Extracts from year-end accounts: Year 1 R'000 Year 2 R'000
Stocks: Raw materials Work-in progress Finished goods Purchases
Cost of goods sold Sales Debtors Trade creditors 276 186 285 1 440
2 196 2 376 594 252 291 194 259 1 404 1 944 2 160 562 210 You are
required to: Answer the following questions: a) Calculate the
length of the working capital cycle for years 1 and 2 assuming 365
days in the year and using end of year working capital balances,
not averages. [12 Marks] b) Explain possible actions that might be
taken to reduce the length of that cycle and the possible
disadvantages of each. [5 Marks] c) Assume that the company is
negotiating to do business with a new supplier who has offered
credit terms of 3/15, net 30. The financial manager is planning to
delay payment for an additional 10 days i.e. to only settle the
account after 40 days. The current bank overdraft rate for the firm
is 25% per annum. Calculate the effective cost of finance provided
by this supplier and comment on the financial manager’s plans. [3
Marks] d) An aspect of working capital policy that requires
managerial attention is the manner in which the items are financed.
Discuss aggressive policy in this regard. [5 Marks
accounts of Make-it (Pty) Ltd for the past two years. Make-it (Pty)
Ltd: Extracts from year-end accounts: Year 1 R'000 Year 2 R'000
Stocks: Raw materials Work-in progress Finished goods Purchases
Cost of goods sold Sales Debtors Trade creditors 276 186 285 1 440
2 196 2 376 594 252 291 194 259 1 404 1 944 2 160 562 210 You are
required to: Answer the following questions: a) Calculate the
length of the working capital cycle for years 1 and 2 assuming 365
days in the year and using end of year working capital balances,
not averages. [12 Marks] b) Explain possible actions that might be
taken to reduce the length of that cycle and the possible
disadvantages of each. [5 Marks] c) Assume that the company is
negotiating to do business with a new supplier who has offered
credit terms of 3/15, net 30. The financial manager is planning to
delay payment for an additional 10 days i.e. to only settle the
account after 40 days. The current bank overdraft rate for the firm
is 25% per annum. Calculate the effective cost of finance provided
by this supplier and comment on the financial manager’s plans. [3
Marks] d) An aspect of working capital policy that requires
managerial attention is the manner in which the items are financed.
Discuss aggressive policy in this regard. [5 Marks