Write 3-5 Pages Examining Importance of Minimizing Working Capital

Minimizing Working Capital

OVERVIEW: In 3–5 pages, write an essay in which you examine the importance of minimizing working capital and the challenges associated with minimizing working capital. Then, complete a series of five questions and calculations related to receivables for a hypothetical company.

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RESOURCES:

• Brigham, E. F., & Houston, J. F. (2013). Fundamentals of financial management (13th ed.). Mason, OH:
• SSharma, D. (2009). Working capital management: A conceptual approach. Mumbai, IND: Himalaya Publishing House.
• Sagner, J. (2010). Essentials of working capital management. Hoboken, NJ: John Wiley & Sons.
• Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: Amacom.
• Downes, J., & Goodman, J. E. (2014). Dictionary of finance and investment terms (9th ed.). Hauppague, NY: Barron’s.outh-Western Cengage Learning.

INSTRUCTIONS:

Part 1. Analysis of Working Capital (3–5 pages)

Examine the importance of minimizing working capital as well as the challenges associated with minimizing working capital. Use the Internet and the Capella University Library to gather a minimum of three resources on this topic.

To complete this assessment, research and write an essay on the following:

• Why is it important to minimize working capital?
• What are the challenges in minimizing working capital?

Use at least three research resources to support your ideas.

Part 2: Receivables Investment

In addition to your solution to each computational problem in this part of your assessment, you must show the supporting work leading to your solution to receive credit for your answer.

• If you choose to solve the problems algebraically, be sure to show your computations.
• If you use a financial calculator, show your input values.
• If you use an Excel spreadsheet, show your input values and formulas.

XYZ Inc. sells on terms of 2/10, net 30. Total sales for the year are $1,000,000. Consider that 30 percent of the customers take discounts and pay on the 10th day, while the other 70 percent pay, on average, 45 days after their purchases.

• What is the days’ sale outstanding?
• Determine the average amount of receivables.
• For the customers who take the discount, what is the percentage cost of trade credit?
• For the customers who do not take the discount and pay in 45 days, what is the percentage cost of trade credit?
• What would happen to XYZ’s accounts receivable if it created a new collection policy that required all non-discount customers to pay on the 30th day?

Additional Requirements

• Length: Your analysis of working capital should be 3–5 typed, double-spaced pages. In addition, include a title page and references page.
• Written communication: Written communication should be free of errors that detract from the overall message.
• Style and Formatting: Your essay should be formatted according to APA style and formatting to cite your references.
• Resources: You must use at least three references.
• Font and font size: Times New Roman, 12 point.