Reference no: EM132546354
Suhana Corporation manufactures and sells a seasonal product that has peak sales in the third quarter. The company's single product sells for Rs. 80 per unit. Budgeted unit sales for the next six quarters are as follows (all sales are on credit):
YEAR 2
Quarter 01 400,000 Quarter 02 600,000
Quarter 03 1,000,000 Quarter 04 500,000
YEAR 3
Quarter 01 700,000 Quarter 02 800,000
Quarter 03 -- Quarter 04 --
Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1 , Year 2, the company's balance sheet showed Rs. 650,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored.
Question 1: Compute company's cash collection (cash inflows). Assume due to COVID-19 company has faced difficulties in cash collection, what options are available for the company to finance its working capital? Do you think that going for debt financing would be a good choice, when discount rate is at 8%?
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