Working Capital

Question 2: Working Capital (30 marks) Reina Ltd has a payables deferral period of 40 dayS, an inventory turnover ratio of 6.9 times and an, The total sales for the year are $300,000 whilst its cash accounts receivable balance of $78,164. calendar year for its working capital conversion cycle is 108 days. The company uses a 365 day calculations. prot margin of 40% and xed operating expenses of $50,000 per year. It The company has a gross before tax on both short term and long term has total assets of $900,000 and its cost of debt is 5% liabilities. It has a policy of funding 50% of assets by equity and a tax rate of 40%. (Please use SALES, not COGS, to calculate the inventory conversion period.) Required: 1. Based on the above information calculate the cash conversion cycle, return on equity and return on assets for Reina Ltd. (10 marks) 2. Assuming that all the information given above remains constant other than the accounts receivable balance which drops from $7 8,164 to $39,802, recalculate the cash conversion cycle, the return on assets and return on equity. (14 marks) 3. Discuss any other policy options for the management and improvement of working capital that may be available to Reina Ltd, other than considering the accounts receivable balance. You must provide two examples. (6 marks)