Sailboats Etc. is a retail company specializing in sailboats and other sailing-r

Question

Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firm’s seasonal working capital needs the greatest? When does it have surplus cash?

Month                                                                                                                                

($000)

0

1

2

3

4

5

6

Net Income

$10

$12

$15

$25

$30

$18

Depreciation

  2

  3

  3

  4

  5

  4

Capital Expenditures

  1

  0

  0

  1

  0

  0

Levels of Working Capital

Accounts Receivable

$2

  3

  4

  5

  7

10

  6

Inventory

3

  2

  4

  5

  5

  4

  2

Accounts Payable

2

  2

  2

  2

  2

  2

  2

Month                                                                                                                                

($000)

0

1

2

3

4

5

6

Net Income

$10

$12

$15

$25

$30

$18

Depreciation

  2

  3

  3

  4

  5

  4

Capital Expenditures

  1

  0

  0

  1

  0

  0

Levels of Working Capital

Accounts Receivable

$2

  3

  4

  5

  7

10

  6

Inventory

3

  2

  4

  5

  5

  4

  2

Accounts Payable

2

  2

  2

  2

  2

  2

  2

Explanation / Answer

Ans

Ans

Working capital Requirement is the highest during the 3rd month to 5th Month

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