FIN3702 OCT 2019 EXAM MEMO.

Sales forecast → production plans → estimation of costs (labour, fixed costs) → pro forma statements → cash budget 2 4 Depreciation is a noncash item 3 2 Trade and other payables and accruals. 4 1 An increase in CA increase NWC, thereby reducing the risk of technical insolvency. 5 1 If a firm uses an aggressive financing strategy, it increases return and increases risk. 6 2 Produce low-cost short cycle goods. 7 3 OC = AAI + ACP AAI = OC - ACP = 120 -40 = 80 8 1 CCC = OC - APP Strategies for managing the cash conversion cycle ▪ Turn inventory over in shorter time without running out of stock. ▪ Collect trade receivables quicker without losing sales from high pressure collection techniques. ▪ Manage mail, processing and clearing time to reduce them when collecting from customers and to increase them when paying suppliers. ▪ Pay trade and other payables as slowly as possible with damaging the firm’s credit rating. 9 3 realized an annual savings of R120,000. This study source was downloaded by from CourseH on :04:48 GMT -06:00 This study resource was shared via CourseH +02 10 4 Cost of giving up CD = 3/97 x 365/15 = 75.26% After stretching AP = 3/97 x 365/45 = 25.09% 11 2 In a revolving credit agreement, the firm pays interest on the amount actually borrowed and commitment fees on any unused portion of the loan. EAR = EAR = 0.11 / (1- 0.15) = 12.9% 12 3 S = usage in units per period O = order cost per unit C = carrying cost per unit Q = order quantity in units EOQ = √ 2 x 2400 x 250/60 = 141units 13 3 The firm’s total cost of inventory is found by summing the order cost and the carrying cost. Thus, the total cost function is TC = [0 x (S /Q) +(C x (Q/2)] = (250 x 2400/141) +( 60 x 141/2) =8 485 14 3 low; high; high 15 2 16 OC=AAI + ACP-APP = 365/11.5 +365/13.6 -365/9.8 = 22