Report

On

Assignment: Mid-term

Course Title: Working Capital Management (FIN 406)

Prepared for

Dr. Naila Al Mahumda

Associate Professor

Faculty of Business Administration

Prepared by

Sultan Mahmud Rakib ID: 172200031

Faculty of Business Administration

Eastern University

Date: December 19,2020

 2.Q. Answer: (a)
The entirety of time firm care approximately the buoyancy and check clearing it takes for cash to
move from one account to another. Generally, the term comes from check composing: The
“float” is the period after installment is made with a check, but a few time as of late the stores
truly move from the check writer’s account. This time period is critical since it’s as on the off
chance that the stores are in two places at once. The money is still within the check writer’s
account, and the check beneficiary may have stored reserves. After you make an installment with
a check, the stores don’t leave your account quickly once you compose the check unless you
employ online charge pay and your bank takes the cash quickly. Instep, the beneficiary ought to
deposit or cash the check. Indeed, after a check is stored, it can take time for the stores to move
from your account, so you'll be able possibly.
Baumol Model: Baumol made an illustrate the trades ask for Cash. A stock theoretic Approach
which is as a run the show utilized in stock organization but has its application in choosing the
perfect cash alter as well. Baumol found similitudes between stock organization and cash
administration.
As Budgetary Orchestrate Sum EOQ in stock organization incorporates tradeoff between
carrying costs and asking brought, the perfect cash alter is the tradeoff between opportunity
gotten or gotten of borrowing or holding cash and the trade brought the gotten of changing over
appealing securities into cash etc. The perfect cash alter is come to at a point where the total
gotten is the slightest. The figure underneath shows up the perfect cash alter.

Miller and Orr Model: Baumol’s illustrate is based on the basic assumption that the assess and
timing of cash streams are known with certainty. This as a run the show does not happen in
sharpen. Cash streams of a firm are not one or the other uniform nor certain. The Mill operator
and Orr demonstrate overcomes the insufficiencies of Baumol model. Miller and Daniel Orr A
show of the Ask for Cash amplified on the Baumol show and made Stochastic show for firms
with questionable cash inflows and cash surges.
 2.Q. Answer: (b)
Calculation of opportunity Cost of Float.
Float Types Float Time (Day) Receipts (Per day) Float in Dollars
Mail Float 4.0 $2 Million $8.0 Million
At firm float 0.5 $2 Million $1.0 Million
Clearing Float 1.3 $2 Million $2.6 Million
Total Transit Time 5.8 Total Float $11.6 Million
Required 0.10 Per year
Opportunity cost Of Float $1.16 Million per year.

3.Q. Answer: (a)

Why the firm should monitor accounts receivables?
The accounts receivable is the greatest or minute greatest account on most companies alter
sheets. The account talks to all uncommon trade credit, other monies that have to be collected
and commitments such as restricted time credits and overpayments. Since it is the ultimate step
inside the arrange to cash cycle for businesses, there are various reasons why checking accounts
receivable is imperative.

Improve Cash Flow: Inside the order-to-cash cycle for an exchange, unrefined materials are
bought and monies are owed to vendors through accounts payable. Rough materials are changed
over and put absent for bargain in stock. Once sold, accounts receivable changes over
livelihoods into cash on hand. Each of these steps is basic, but accounts receivable is the
essential step that turns bookkeeping cash into honest to goodness cash. Coming up brief to
screen and ensure that the accounts receivable work is beneficial will lead to less available cash
for exchange works out.

Improve Cash Management: In association to cash stream, require of cash on hand will
influence a company’s capacity to supervise operations. As bargains are changed over to cash,
cash is at that point put to utilize buying more materials for stock. On the off chance that
companies can turn around receivables speedier than their payables, positive working capital
will result. Down and out accounts receivable checking can lead to a circumstance where
payables outpace receivables, compelling you into stock financing. This incorporates
inconsequential costs to advertising thing.

Deter Bad Debt: The longer receivables are uncommon, the less likely they will be able to be
collected. Once a receivable is considered uncollectable, it is expensed against net advantage.
Watching accounts receivable and your developing of accounts will help you recognize
companies that do not pay their bills, foreseeing conceivable future loathsome commitment.
Avoid Unclaimed Property: Any over the top charge that has developed a demonstrated
whole of time must be point by point and traded to the state in which a client stays. Something
else, you will be subject to an audit and following charmed and disciplines. These laws are
troublesome to investigate as each state has differing prerequisites. Watching accounts
receivable to evacuate exceptional credits is the because it was way to avoid being subject to
these laws and declaring.

3.Q. Answer: (b)

Daily Deposit $75000
Transfers Year 250
Depository Transfer ACH Electronic
Transfer Mechanism Check Transfer Wire Transfer
Cost per Transfer $1.50 $ 3.00 $16.00
Availability (Days) 2 1 0.5
Transfer Cost per year $375 $ 750 $4,000
Float $150,000 $75,000 $ 37,500
Required Return
0.08 0.08 0.08
 
Opportunity Cost of
Float $12,000 $6,000 $3,000
Total Transfer Cost $12,375 $6,750 $7,000

Its issue the most reduced fetched arrangement is to utilize the ACH electronic exchange
instrument.
 4.Q. Answer: a&b

lockbox location problem: while we show the logical of a common course of action to the
lockbox issue, firm arranging lockbox system do not particularly utilize these logical. computer
program to choose lockbox region are satisfactory complex and the lockbox choice. he lockbox
area issue may be a fetched minimization issue.
To solve the lockbox location problem, the firm must collect four sets of data.
•1. The mail and clearing times for sending checks from each part of the firm’s geographic sales
area to each possible lockbox.
•2. The total amount of daily funds and number of checks received by the firm from each part of
the sales area.
•3. The required rate of return.
•4. The variable and fixed costs of each proposed lockbox site.

Mail Dollar Total Float

Origination Clearing
Float Total Float Time Originations per Dollars
Zone Float Tie
time day (Thousands) (Thousands)
           
Proposal 1 (Lockbox Located in Zone C
A 2.8 1.8 4.6 3500 16100
B 3.1 1.3 4.4 4500 19800
C 2.8 1.1 3.9 3000 11700
D 3.5 1.3 4.8 2500 12000
Total Dollars Float for this lockbox 59600
Required Return 0.09
Opportunity cost of Float - One Lockbox solution 5364
Fixed cost of Lockbox for this location 10
Number of Checks Processed per year 1944
Processing cost per check 0.15
Check processing cost cost-One lockbox solution 292
Total cost (Opportunity cost + Fixed cost + Processing cost) $5666
 Mail Dollar Total Float
Origination Clearing
Float Total Float Time Originations per Dollars
Zone Float Tie
time day (Thousands) (Thousands)
           
Proposal 1 (Lockbox Located in Zone D
A 3 1.7 4.7 3500 16450
B 3.3 1.5 4.8 4500 21600
C 3.5 1.3 4.8 3000 14400
D 1.8 1 2.8 2500 7000
Total Dollars Float for this lockbox 59450
Required Return 0.09
Opportunity cost of Float - One Lockbox solution 5350.5
Fixed cost of Lockbox for this location 4
Number of Checks Processed per year 1944
Processing cost per check 0.13
Check processing cost cost-One lockbox solution 253
Total cost (Opportunity cost + Fixed cost + Processing cost) $5607