UOP MBA 550
June 2, 2008
Working Capital Management Concepts Worksheet
Concept Application of Concept in the Simulation Reference to Concept in Reading
The cash management is the responsibility of the manager to handle among many things the daily cash management functions of an organization. This is to balance such things, like bank loans, bad debts and loan repayments to mention a few. Lawrence Sports is an organization that manufactures and distributes equipments, as the finance manger the company has advise the borrowed amount should not be more $1.2 million and ensure the interest rate is at a manageable level
“To finance its investment in current assets, a company may rely on a variety of
short-term loans” (Brealey-Meyers-Allen, 2005, p.856)
“Companies sometimes wait until they need the money before they
apply for a bank loan, but nearly three-quarters of commercial bank loans are made
under commitment” (Brealey-Meyers-Allen, 2005, p.856).
The commitment of the principal customer like Mayo is question, as a result of their default the company now must borrow money to ensure continuation of operations.
“Credit lines are relatively expensive, for in addition to paying interest on any
borrowings the company must pay a commitment fee on the unused amount” (Brealey-Meyers-Allen, 2005, p.856). “This line of credit may be an
evergreen credit with no fixed maturity, but more commonly it is a revolving
credit (revolver) with a fixed maturity of up to three years” (Brealey-Meyers-Allen, 2005, p.856).
Rate of Interest
Lawrence Sports has agreed with the finance manager to limit the borrowed amount to $1.2 million, but the weekly interest rate of $50,000 increases. The objective of the CFO is to keep the bank borrowing and interest as low as possible
“Short-term bank loans are often made at a fixed rate of interest,
which is... [continues]
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