i hve two questions
1) question name international enterprise…. part b calculating maximum dividend capacity …. how did the examiner arrive at that increase in working capital ??
2) question name greffer inc …. if the company intends to pay off its overdraft thru retained cash , which it does by using all the retained profit…. how come the equty increases when part of earnings is paid out as dividend and part is used to pay off overdraft???
To your Q1. International Ent
You start by calculating your working capital (WC) days (Inventory days + Receivables Days – Payable Days) and you will get +18days. This represents the gap between payment received and payment made. Ie. you receive cash later than you make payment. This means your cost of sales are unfunded for 18 days, and you will need additional capital to finance this gap.
Re-translating this in cash terms: (18/365 days) x ($143.2 Cost of Sale – $28 Dividend payable)
tiklief actually i had reached to that point of 18 unfunded days ….. should it not be like this 18/365 * 143.2 why are they deducting dividends payable from COGS…. ? plz have a look at that grefferinc problem too…. and thanx for the reply…
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