Question

Q1 Q2 Q3 Q4 Minimum Cash Balance $300 $300 $300 $300 Accounts Receivable 80 640 360 100 Inventory 1060 420 60 440 Accounts Payable (330) (330) (330) The data above shows the networking capital requirements for Flinder's Camping, a company that makes tents. All figures are in thousands of dollars. What can be considered the firm's permanent working capital? (330) O A. $510,000 OB. $720.000 O c. $1,030,000 OD. $390,000

Answer 1

What can be considered the firm’s permanent working capital?

Answer: D) $390,000

Workings

Permanent working capital refers to the base working capital, which is the minimum level of working capital that is carried by the entity at all times to carry its day to day activates.

In the given question we are provided details for Q1, Q2, Q3 and Q4 data we need to find the working capital for reach period and lowest working capital all the 4 periods will be the permanent working capital

Working capital = current assets – Current liabilities

Working capital   = Minimum cash balance + Accounts Receivable + Inventory - Accounts Payable

Calculation for working capital

	Q1	Q2	Q3	Q4
Minimum cash balance	$300,000	$300,000	$300,000	$300,000
Accounts Receivable	$80,000	$640,000	$360,000	$100,000
Inventory	$1,060,000	$420,00	$60,000	$440,000
Accounts Payable	($330,000)	($330,000)	($330,000)	($330,000)
Working capital	$1,110,000	$610,000	$390,000	$510,000

Permanent working capital

Since $390,000 is the lowest working capital requirement, same is the permanent working capital. same need to be maintained all the time.

Note: data provided for Q1, Q2, Q3 and Q4 are assumed to be in 1,000’s.