3.1 Assuming you are the financial advisor to Warren Buffet who is considering investing in one of the following three companies in the same industry. He considers them to be equal in all regards except for the differences described below. Warren has asked you for assistance to help him understand the effects of different working capital strategies adopted by each company. He has provided you with the following information as shown in Table 3.1. Page 4 of 8 Statement of Financial Position Non-current assets Current Assets Villdale Bricks Ltd R million 100 250 350 Beta Bricks Ltd R million 100 325 425 Golden Bricks R million 100 400 500 Equity Long-term loan - 10% interest rate Current liabilities 150 50 150 350 200 100 125 425 250 150 100 500 Table 3.1 In each case, Warren expects eamings before interest and tax to be 10% of sales. Under normal trading conditions he would expect annual sales to be twice the present level of current assets. Tax rate is 30% 3.1.1 Advise Warrant Buffet which company will provide the best return on equity. (5 Marks) 3.1.2 Discuss what other matters including risk. Warren should consider when comparing the working capital strategies (10 Marks) The most appropriate pattern of financing working capital is to match the length of the financing terms to the length of the current asset terms. Critically discuss the validity of the statement and the difficulty in achieving such an objective. (10 Marks) 3.2 UTSTION