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A company has annual credit sales of $27 million and related cost of sales of $15 million. The company has the following targets for the next year:
Trade receivables days 50 days
Inventory days 60 days
Trade payables 45 days
Assume there are 360 days in the year.
What is the net investment in working capital required for the next year?A. $8,125,000
B. $4,375,000
C. $2,875,000
D. $6,375,000We can easily find out the trade rec and inventory
How can we find the trade payables ? If we are not given credit purchases ? In marking scheme they have used 15m as credit purchases
to find trade payablesWe have to make the best use of the information available.
Here we have no choice but to assay that the credit purchases are the same as the cost of sales.
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