QUESTION ONE [25] 1.1. The following data was extracted from the company statements of Smart Limited, a sleepwear retailer for the year ended 31 March 2023: Credit purchases 259 200 Credit sales 432 000 Opening stock 107 845 Closing stock 85 000 Debtors 86 400 Creditors 44 740

Required: 1.1.1 Calculate the length of the working capital cycle by making use of the ratios, days stock on hand (inventory); debtors collection period (receivables) and creditors (payables) settlement period. (9) 1.1.2 Discuss possible actions that might be taken to reduce the length of the working capital cycle. (4)

1.2 Watsonia Construction is considering factoring its accounts. Credit sales amount to approximately R12 million per year. The company's collection period is 60 days. Quick Loans Limited is a factoring company. They are prepared to offer Watsonia Construction the following terms: 50% on each credit invoice will be paid immediately and interest will be charged at 2% above the current prime rate of 11%. Service fees will be charged at 1% of total sales. The company is offered a discount of 4% for cash settlement by its suppliers, subject to a discount amount of 40% of its total sales. Watsonia Construction will save R50 000 in expenses, if it were to factor. Required: 1.2.1 Calculate the effective cost of factoring. (10) 1.2.2 Is this form of factoring effective? Justify your answer. (2)