QUESTION ONE [25]

1.1 Bay city has actual sales of R65 000 in April and R60 000 in May. It expects sales of R70 000 in June and R100 000 in July and in August. Assuming that sales are the only source of cash inflows and that half of them are for cash and the remainder are collected evenly over the following two months, what are Bay city's expected cash receipts for June, July and August? (12)

1.2 Spatnik (Pty) Ltd produces Nitrogen fertilizers for the majority of commercial farmers in South Africa. The company's inventory has average age of 75 days and trade receivables are collected in 50 days. Trade and other payables are paid approximately 60 days after they rise. The average cash conversion cycle for fertilizer manufacturers is 45 days.

1.2.1 Calculate the firm's operating cycle. (5)

1.2.2 Calculate the firm's cash conversion cycle. (5)

1.2.3 Comment on the efficiency of inventory management for Spatnik Pty Ltd. (3)