Working Capital Management and Capital Budgeting

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Working Capital Management and Capital Budgeting
Alexis A. Stoute
University of Phoenix
Finance for Business
FIN/370
Terry Dowdy, PhD
August 02, 2010

Working Capital Management and Capital Budgeting
This week’s assignment focused on Working Capital Management and Capital Budgeting. As per the class syllabus, students were to formulate responses for questions 4-6A (Chapter 4) and 5-1A, 5-4A, 5-5A, and 5-6A (Chapter 5) from the book Financial Management: Principles and Applications. In this paper I will briefly discuss the answers that I formulated for each question. For question 4-6A (Chapter 4) we were instructed to prepare a cash budget for the Sharpe Corporation, which was to cover the first seven months of 2004. There was additional information given to help prepare the cash budget such as rent and other expenditures, how suppliers are paid, and information on short-term financing. This as well as additional information was necessary for the completion of the cash budget. Students were also asked to answer the second part of question 4-6A: b. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes (Keown, Martin, Petty, & Scott, 2005)? According to the cash budget analysis, the Sharpe Corporation will have funds of $222,009 in July to repay the notes. After the notes are paid the Sharpe Corporation will have $22,009 left, which is well over the balance of $15,000 that must be maintained on a monthly basis. In Chapter 5 students were instructed to formulate answers for questions 5-1A, 5-4A, 5-5A, and 5-6A. While my work was done separately, and submitted via my individual forum on OLS, I will briefly discuss my answers in the next few paragraphs. Question 5-1A (a, b, c, d) required students to formulate the compound interest for different amounts. Using the ratio indicated in my work I came up with the following answers: a....
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