Assumptions:

AR advance rate 85%

Inventory advance rates: raw material – 25%, finished goods – 50%

Ineligible AR consists of invoices aged over 90 days

Company has terms with vendors – no cash is due to vendors upon receipt of raw materials

For each scenario below calculate the impact on cash, availability and net liquidity (cash + availability)

1.Eligible AR of $100 is collected

2.Raw material of $80 is received, eligible AR of $50 is collected

3.Inventory of $100 is sold for $200

4.Raw material of $100 is received, raw material of $200 is converted to finished goods, finished goods of $50 is sold for $100, eligible invoices of $50 are collected

5.Ineligible AR of $1,000 is collected, raw material of $800 is procured, raw material of $500 is converted to

Transcribed Image Text:

AR Raw materials Finished goods 1. Sale-new receivable Sale-relief of FG Collection - eligible Collection-ineligible Purchases Transfer to FG Total 2. Sale-new receivable Sale-relief of FG Collection - eligible Collection-ineligible Purchases Transfer to FG Total 5. 3. Sale-new receivable Sale-relief of FG Collection - eligible Collection - ineligible Purchases Transfer to FG Total 4. Sale-new receivable Sale-relief of FG Collection-eligible Collection-ineligible Purchases Transfer to FG Total Sale-new receivable Sale-relief of FG Collection eligible Collection - ineligible Purchases Transfer to FG Total Input 85% 25% 50% *** Cash Cash Cash Cash. Cash Availability Availability Availability Availability Net Liquidity Net Liquidity Net Liquidity Net Liquidity Availability Net Liquidity AR Raw materials Finished goods 1. Sale-new receivable Sale-relief of FG Collection - eligible Collection-ineligible Purchases Transfer to FG Total 2. Sale-new receivable Sale-relief of FG Collection - eligible Collection-ineligible Purchases Transfer to FG Total 5. 3. Sale-new receivable Sale-relief of FG Collection - eligible Collection - ineligible Purchases Transfer to FG Total 4. Sale-new receivable Sale-relief of FG Collection-eligible Collection-ineligible Purchases Transfer to FG Total Sale-new receivable Sale-relief of FG Collection eligible Collection - ineligible Purchases Transfer to FG Total Input 85% 25% 50% *** Cash Cash Cash Cash. Cash Availability Availability Availability Availability Net Liquidity Net Liquidity Net Liquidity Net Liquidity Availability Net Liquidity

Answer rating: 100% (QA)

1Eligible AR of 100 is collected Impact on cash Cash will increase by 85 as the AR advance rate is 85 Impact on availability Availability will not be ... View the full answer