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Working Capital Management Concepts Worksheet

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Essay title: Working Capital Management Concepts Worksheet

Working Capital Management Concepts Worksheet

Solomon Eboigbodin


Lynn Duffner

June 2, 2008

Working Capital Management Concepts Worksheet

Concept Application of Concept in the Simulation Reference to Concept in Reading

Bank Loans

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 often quoted as a discount” (Brealey-Meyers-Allen, 2005, p.857). “For longer-term bank loans the interest rate is usually linked to the general level

of interest rates. The most common benchmarks are the London Interbank Offered

Rate (LIBOR)22 the federal funds rate,23 or the bank’s prime rate” (Brealey-Meyers-Allen, 2005, p. 857).

Using cash efficiently

The manager for the month of April for Lawrence Sports to use cash efficiently to balance

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