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sir in the kaplan text related to the working capital they stated that when a company maintains higher level of payables then its a cheap source of finance ….
i wonder how could that be possible sir
The net working capital is the current assets less the current liabilities, and the current liabilities are in part financing the current assets.
Using an overdraft to provide the finance will mean paying interest. Using payables does not mean paying interest.
It is perfectly normal to delay paying payables for as long as possible. The only things that the company needs to be careful of is that by delaying payment they may be losing discounts that they could have had, and if they delay payment for too long then the supplier may refuse to sell to the company on credit in the future.
I have a question regarding WACC. The book value of 5% redeemable debentures is 6.8 million.the market value of the debentures is $101% (cum-interest ). How do I work out what the Ex interest value is and the total market value of the debentures ex interest ?
This post is nothing to do with working capital. In future you must start a new thread when asking about a different topic.
Have you not watched my free lectures on this?
The ex interest market value is 101 – 5 = 96 per $100 nominal.
Therefore the total market value is 6.8 million x 96/100 = $6.528 million
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