• April 9th, 2016

Working capital

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QUESTION
Borboleta is considering a change to its credit policy as its attempt to help its customers through its supply finance scheme. This will result in an increase in its debtor’s collection period from one month to two months. This relaxation of credits terms should give rise to an increase in sales in each year amounting to 3% of credit sales volumes.
Sales price per unit 20 pounds
Marginal cost per unit 17 pounds
Current sales per annum 4.8 million
The company require a twenty percent return on investment
The management accountant has estimated that the 25% increase in sales would result in additional stocks of 200,000 pounds and additional creditors of 40,000 pounds
Question
Advise the company on whether or not to extend the credit period offered to customers if
1 all customers take the longer credit of two month 10 marks
2 Existing customers do not change their payment habit, and only the new customers take a full two month credit 10 marks
3 How is supply chain finance altering the traditional role workin of working capital management and critically evaluate how a negative interest rate policy affects a firms opportunity cost of capital 30 marks
Please i have added the mark so that you will know the grade for each question and please in answering question 1 please lay it out in the normal academic format and you could also use a companys account or information and thier charts

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