(a) Explain, with the use of a numerical example, the meaning of the term ‘cash operating cycle’ and its significance in relation to working capital management.

(b) Delcars plc own a total of ten franchises, in a variety of UK locations, for the sale and servicing of new and used cars. Six of the franchises sell only second-hand vehicles, with the remaining four operating a car service centre in addition to retailing both new and used vehicles. Delcars operate different systems for banking of sales receipts, depending on the type of sale. All monies from new car sales must be banked by the garage on the day of the sale; receipts from second-hand car sales are banked once a week on Mondays, and receipts from car servicing work are banked twice a week on Wednesdays and Fridays. No banking facilities are available at the weekend, i.e. Saturdays and Sundays. The sales mix of the three elements (as a percentage of Delcars’ total revenue) is as follows: 60 per cent new vehicles; 25 per cent second-hand vehicles; 15 per cent servicing. Total sales for all three business areas amounted to £25 million in 1999. Delcars pays interest at a rate of 8.5 per cent per annum on an average overdraft of £65,000, and the company’s finance director has suggested that the company could significantly reduce the interest charge if all sales receipts were banked on the day of sale. All the garages are open every day except Sunday. Assume that the daily sales value (for all three areas of business) is spread evenly across the week.

Calculate the value of the annual interest which could be saved if all ten franchises adopted the finance director’s suggestion of daily banking.

(c) Using the example of a car dealership such as Delcars, as given in

(b) above, outline the advantages and disadvantages of centralisation of the treasury function.

(ACCA)