A company has RM1,000,000 in idle funds and it is estimated that these will be available for investment for approximately 2 months. The treasurer is considering the following investments: (a) Purchasing Malaysian Treasury Bills;
(b) Purchasing a one-month bank Certificate of Deposit;
(c) Lodging a fixed deposit with a bank;
(d) Purchasing commercial paper;
Discuss the advantages and disadvantage of each investment.
“the term working capital is originated with the old Yankee peddler, who would loud up his wagon with goods and then go off his wares. The merchandise was called working capital because it was what he actually sold, or “turned over,” to produce his profits. The wagon and horse were his fixed assets. He generally owned the horse and wagon, so they were financed with “equity” capital, but he borrowed the funds to buy the merchandise. These borrowing were called working capital loans, and they had to be repaid after each trip to demonstrate to the bank that the credit was sound” (Eugene, 1999, pg.792) Required:
Answer the following questions:
(a) What is working capital? What are the principle components of working capital? (b) What is the primary objective of working capital management? (c) Explain what factors affect working capital requirement? (d) What are the sources used for financing temporary requirement of working capital? (e) What strategies are available to a firm for financing its working capital requirement? (f) What is the fundamental trade-off that managers face when managing working capital?
Abbey Sdn Bhd. is planning on hiring Sofea as their financial manager to seek advice on what financing strategies should they choose that best suit the company. Below is the Statements of Financial Position for Abbey SdnBhd during high season. Non-current Assets
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