(Calculating the cost of a short-term bank loan)

Return to the operating structure outlined in Study Problem 186. Lotfield have planned three different tranches of workflow to meet three orders received from a customer. There will be 50 days between the delivery/selling date of each tranche. If the raw materials cost 75,000 for each tranche and there is a profit margin of 40,000, what will the working capital requirement to fulfil the three orders be? Ignore any other costs and assume that cash received will be available as free cashflow.

Update 186. (Estimating the cost of bank credit) Lotfield enterprises is just starting in business and the owner has heard about the need to understand her operating cycle and her cash conversion cycle. She asks you to illustrate and explain why this matters for her cashflow. Her plans are as follows:

a. Conversion of raw materials to sold product will be 46 days.

b. Customers will be required to pay within 34 days.

c. Her raw material supplier will give her 10 days of interest-free credit.