08 Jun Question Working capital management and capital budgeting
Question
Working capital management and capital budgeting
Print Page
To prepare for the assignment:
Read the Required Learning Resources for Week 7.
Part A
BLC Ltd. is a medium-sized UK manufacturing company based in Liverpool. The company is seeking to expand its operations with the establishment of an office block to house the marketing and human resources staff in Manchester.
The company has narrowed the choice to two alternatives with the following net cash flow information being available:
Year
Property 1
Property 2
£000s
£000s
0
(2,500)
(2,750)
1
1,000
900
2
500
700
3
600
800
4
1,000
600
5
900
700
Items to keep in mind:
The company’s current cost of capital is 10%.
For this assignment, ignore taxation.
Required
As the company accountant is currently on holiday you are required, by calculating net present value, internal rate of return and payback, to advise the company which option they should take.
You should also critically evaluate the other qualitative factors that might be taken into account in this decision.
Part B
BLC Ltd. has revenue of £500 million and sells all of its goods on credit to a variety of different wholesale customers. At the moment the company offers a standard credit period of 30 days. However, 70% of its customers (by revenue) take an average of 70 days to pay, while the other 30% of customers (by revenue) pay within 30 days. The company is considering offering a 2% discount for payment within 30 days and estimates that 80% of customers (by revenue) will take up this offer (including those that already pay within 30 days).
The Managing Director has asked the credit controller if the cost of this new policy would be worth offering. The company has a £80 million overdraft facility that it regularly uses to the full limit due to the lateness of payment and the cost of this overdraft facility is 15% per annum.
The credit controller also estimates that bad debt level of 2% of revenue would be halved to 1% of revenue as a result of this new policy.
Required
Calculate the approximate equivalent annual percentage cost of a discount of 2%, which reduces the time taken by credit customers to pay from 70 days to 30 days.
Calculate the value of trade receivables under the existing scheme and the proposed scheme at the year-end.
Evaluate the benefits and costs of the scheme and explain with reasons whether the company should go ahead and offer the discount. You should also consider other factors in this decision. (Hint: You need to work out the cost of the discount compared to the interest on the overdraft saved and bad debt reduction.)
This assignment should be around 1,000 words and should be submitted in the form of a Business Report (approximately 500 words for each part). Your submission for this Assignment should be posted to the Turnitin link provided by the end of Day 7.
To complete the assignment:
Be sure to read over your Individual Assignment before submitting it to your Instructor. Make sure the spelling and grammar are correct and the language, citing and referencing you use when providing your opinion are appropriate for academic writing
Important not Please make sure plagiarism should not exceed 15%
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.