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Working capital management

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Working capital management

  • This topic has 9 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 10 posts - 1 through 10 (of 10 total)
  • Author
    Posts
  • May 23, 2015 at 1:46 pm #248149
    amara
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    i just want to know the solution procedure and answer for this example…

    Entity X borrows at an annual interest rate of 15%.customers are normally required to pay within 45 days.Entity X offers a 1.5% discount if payment is made within ten days.
    what is the effective annual cost of offering the settlement discount?

    May 23, 2015 at 2:38 pm #248167
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    The cost of the discount is 1.5/(100-1.5) = 0.015228 over a period of 35 days (45 – 10).

    To turn this into an effective annual cost (R), then

    1+R = 1.015228^(365/35) = 1.1707

    R = 0.1707 or 17.07%

    May 23, 2015 at 3:26 pm #248184
    amara
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    sir why the method of solving this question and that of the example( # 1 from chapter 5 on page 25,opentution notes) is different?
    i think they have the same requirement…or not?

    May 24, 2015 at 9:32 am #248293
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    True. This is one lecture I need to re-record. In the past the examiner used to always accept either the way in the lecture or the way above (which is strictly more correct).

    However, now that there are multiple choice questions, the method above is the one to use. (I will re-record the lecture, but given that at most it will be one multiple choice question, it is not a big problem.)

    May 25, 2015 at 6:03 am #248732
    amara
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Oh ok…thanks a lot Sir!

    May 25, 2015 at 7:58 am #248763
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    You are welcome 🙂

    May 28, 2015 at 11:08 am #249801
    barrzo05
    Participant
    • Topics: 3
    • Replies: 3
    • ☆

    Hi John, having a mental block wat does the ^ mean in the calculation. I just can’t get the answer and as you say possibly only 1 question and don’t want to. Waste too much time on it. Thanks

    May 28, 2015 at 2:22 pm #249848
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    It is a way of typing “to the power of”

    So 4^2 = 4 squared = 16

    4^3 = 4 cubed = 64
    and so on

    (The exam paper will show it the proper way (I mean for the first one, 4 with a little 2 high up after it) and you should write it the proper way in the exam. It is just difficult to type it the proper way here 🙂 )

    May 28, 2015 at 6:39 pm #249965
    barrzo05
    Participant
    • Topics: 3
    • Replies: 3
    • ☆

    Thanks for that.

    May 28, 2015 at 8:36 pm #250006
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    You are welcome 🙂

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