Your firm plans a project that will generate revenues of $53 million. The Cost of Goods Sold
Question:
Your firm plans a project that will generate revenues of $53 million. The Cost of Goods Sold (COGS) is expected to be 60% of revenue. The firm offers 90 days credit to its customers and in turn, gets 180 days credit from its suppliers. The firm follows just in time inventory policy and hence only uses 5 days of inventory in its operations. What is the amount of NWC the firm will need? Assume that working capital days for accounts receivable are based on revenue, working capital days for accounts payable and for inventories are based on costs, and there are 360 days a year.
[Write your answer in million dollars, rounding to 2 digits after the decimal point.] As an aside: Note that in general, the level of NWC can be either positive or negative. This question did not ask you to calculate FCF, but if you were asked to do so you will need to deduct the increase in the level of NWC relative to the level in the previous year.
Fundamentals of Advanced Accounting
ISBN: 978-0077862237
6th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik