Buddha Tamang is the manager in charge of short-term finance and planning for Exotic Cuisines Inc, a restaurant chain that specializes in exotic main dishes, using ingredients such as alligator, buffalo, and ostrich. The restaurant operates in the United States and plans to open another chain in an emerging country. The board of the company is considering ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term to finance inventory and accounts receivable associated with revenue growth. Buddha met the board in a meeting yesterday and opened the meeting with the statement that the company must investigate its cash cycle and find ways to improve it because he has noticed a deterioration in the cash flow management of the firm. Buddha was worried that the inventory period of the company increased from 50 days two years ago to 60 days in previous year and the accounts receivable period also increased from 27 days last two years to 30 days the previous year whilst the accounts payable period remains the same at 40 days. He explained that if the two components of cash cycle ie., operating cycle and accounts payable period are not improved, the company might need to borrow $5.5 million short-term next year to fill the gap between short-term cash inflows and cash outflows Buddha has collected the following information for Exotic Cuisines Inc for the year 2020. Item Beginning Ending Inventory 6,000 8,200 Accounts receivable 2,800 3,200 Accounts payable 3,820 5,840 Credit sales for the year just ended were $75,000, and cost of goods sold was $40,000. Buddha explained that the company can change some aspects of its short-term financial policy and find alternative financing policies to fund current assets to improve its working capital management. 1. Calculate the following utilization ratios for Exotic Cuisines Inc. i. inventory period ii. receivables period ili. payables period 2. Using the utilization ratios, the board chairman wants you to calculate the following and explain what they mean i). Operating cycle of the company for 2020 in. Cash cycle of the company for 2020 3. The company wants to increase its cash position. Explain to the board if the following activities increase or decrease cash: increasing long-term debt ii. increasing current liabilities increasing current assets other than cash iv. increasing equity (i.e., selling some stock) V. increasing cash dividend payments 4. The board is concerned that the net working capital might be declining and not meet the $2 million minimum requirement of the company. The company has a cash balance of $3 million and other current assets of $2.8 million and current liabilities of $3.3 million. Should the board worry about the company's net working capital
