Assignment 3: Reguired: Answer the following questions using a spreadsheet, (you will be reguired to solve similar problems on the midterm and final exam using only a spreadsheet). The emphasis is on showing all your work (the equations, calculator steps, spreadsheet (Excel) formulas and answers) for each question. You can use the question sheet below to document and to submit your work. Your submitted work should be typed, but you can submit hand written work for this assignment providing it is submitted as a pdf file. Your answers should be accurate to the nearest cent (unless advised otherwise) for all monetary amounts and to 6 decimal place for all other answers. Assignment # 3 Grading Rubric out 100 points 0') + C 8 m '12 E 1?: 1: + E E :5 = E = (D (D 1:: '0 g- 2' a 4% a 8 E E 8 8 -'= E 2 *5 2 G o O E > > (D (D E o. E z E 100% 90% 85% 80% 75% 70% 60% 50% 30% 0% Alex Gowell Corporation (AGC) is a coffee roasting company in North Vancouver. The company has experienced an incredulous growth in the last 2 years. The ownerwants to be sure the growth is sustainable and is manage its working capital well. He is also worried about potential liquidity issues if AGC continues to grow at the current pace. You are the only accountant at AGC. The owner has tasked you with this project. He has mentioned that he would like to compile all the information pertaining to AGC's working capital in an excel document to provide recommendations on what financial strategies AGC should implement to better manage their working capital. Question 1: Start of your document by illustrating and clearly explaining how protable businesses can become bankrupt due to the mismanagement of their working capital. In your explanation, dene what working capital is, along with its two main components, as well as the difference between cash ow and prots. Describe how businesses can mitigate this problem of going broke while still being technically protable. Question 2: RBC has recently offered AGC a one-year $2 million operating line of credit (LOC) at a rate of 6.25% in anticipation for year 2020. There is a monthly 0.75% commitment fee on the unused amount. AGC is considering taking this LOC and wants to estimate its cash needs for the month of September 2020. The owner is looking for at least two other short-term nancing options AGC could employ to assist with future cash ow shortages. He does not understand how revolving loans work and how they are benecial to AGC. Explain. The owner estimates that if AGC takes the LOC, it will borrow only $1.25 million during January- September 2020 and further reduce by $0.2 million for the remaining 3 months. What is the effective annual cost (in percent) of the RBC operating line of credit arrangement? Question 3: Cashow The following sales forecasts have been made for 2020: August $400,000 September $300,000 October $300,000 November $200,000 December $200,000 I Collection estimates were obtained from the credit collection department as 50% collected within the month of sale and the rest after. Management is considering whether to change this to more lenient credit terms that result in 35% of sales collected immediately and the rest a month later? I Production costs will be 65% of monthly sales I AGC pays half of its bills immediately and the other half in the following month. I The company holds 2 months of sales in inventory I General administrative expenses paid in the months of October and November are $40,000 and $44,000, respectively I The corporation tax rate is 40%. Estimated tax liability are to be paid quarterly {i.e. March, June, September and December), though adequate provisions are to be are every month for taxes. The ending cash balance in September is anticipated to be $16,000. The owner would like to see a cash budget for October and November 2020 Question 4: Should AGC also consider a trade credit? Would a trade credit be labelled as a nancing strategy? Provide an example of a rm that uses this strategy in their business model to better explain this to the owner. Question 5: Below judgement is to be assumed based on collection point mentioned in cashow analysis bullet point 1: I Collection estimates were obtained from the credit collection department as 50% collected within the month of sale and the rest after. Management is considering whether to change this to more lenient credit terms that result in 35% of sales collected immediately and the rest a month later? Address management's consideration to offer lenient credit terms. Should they? Do you have any suggestions? What KPl's should they look at? Explain the implications and what impact it has on the development of a company's operations