Question

Q. 01: Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The ble contains financial forecasts as well as current (month 0) working capital levels During which months are the firm's seasonal working capital needs the greatest? When does it have surplus cash? Months ($ 000) 0 1 2 3 4 5 6 Net Income $ 10 $ 12 $15 $ 25 $ 30 $ 18 Depreciation 2 3 3 4 5 4 Capital Expenditure 1 0 0 1 0 0 Levels of Working Capital Accounts Receivable $2 3 4 5 7 10 6 Inventory 3 2 4 5 5 4 2 Accounts Payable 2 2 2 2 2 2 2 Solution:

Answer 1

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Answer:

To determine Sailboats seasonal working capital needs, we calculate the changes in net working capital for the firm.

MONTHS CHANGES IN WORKING CAPITAL ACCOUNT RECEIVABLE $1 $1 -$1 0 $1 $2 0 $1 $1 O INVENTORY ACCOUNTS PAYABLE CHANGE IN NETWORKING CAPITAL $3 | $21

From the table it can be seen that Sailboat’s working capital needs are highest in Month 2 because its investments in accounts receivable and in inventory increased the most in that month. Sailboats, Etc. has a surplus cash position in every month as shown below

MONTH 2 3 6 1 $10 2 $12 $30 Iwo $15 3 $25 4 3 $18 4 -6 (000) NET INCOME PLUS DEPRECIATION MINUS CHANGING IN NETWORKING CAPITAL CASH FLOW FROM OPERATIONS MINUS CAPITAL EXPENDITURES | CHANGE IN CASH Zools $12 $12 $12 $16 $27 $33 $28 1 OTO $11 $12 $16 $26 $33 $28