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Hardrock Hardware PLC estimate a cash of $2 500 000 over the next five months. This amount is available to the firm in the form

Hardrock Hardware PLC estimate a cash of $2 500 000 over the next five months. This amount is available to the firm in the form of marketable securities. It can earn 10% annual yield on its marketable securities. Conversion of marketable securities into cash entails a fixed cost of $750 per transaction. Determine: i. Optimum cash balance (3 marks) ii. Average cash holding (1 mark) iii. Number of transactions (1 mark) iv. Average number of days per transaction (assume 30 days per month) (1 mark) v. Total cost of holding cash balance (3 marks) vi. Per day usage of cash (1 mark) B. Wright Industries Limited traditionally follows a highly aggressive working capital policy with no long-term borrowings. Below are key details recently compiled: Items $ (million) Sales (all on credit) 24 Purchases (all on credit) 8 Gross profit 6 Average receivables 3 Average inventory 2 Average accounts payables 2 The firm is also proposing to offer a 4/10, net /30 discount policy to reduce accounts receivables. Wrights anticipates 30% of its customers will take advantage of the discount. As a result of this discount policy, the collection period will be reduced to 1 months. The company also provides the following data: Current annual credit sales 24 000 000 Collection period 2 months Terms net /30 Required rate of return 12% Determine: i. the firms working capital cycle, that is, cash conversion cycle. (4 marks) ii. whether the firm should offer the new discount policy to customers. (6 marks) (Total 20 marks

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