Determine the working capital management

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Answer the following questions related to working capital management:

a) PT Solusindo Nusantara, a company with no liquidity problems, always pays its suppliers in full 45 days after the invoice even though they offer a 4% discount if the company pays in 10 days (4/10 net 45). Explain using the effective cost concept, why this is not good working capital management. Justify your answer with actual figures related to the calculation of the effective cost.

b) Pizza Club is thinking about financing the purchase of a delivery van with a useful life on 10 years using a 3-year loan from the bank because it is cheaper than a 10-year one? Would this be a good idea? Use the hedging principle.

c) Which one of the following credit-terms would be the best for a company? Justify your answer with actual figures related to the calculation of the effective cost. The answer depends on whether the company can take advantage of the credit terms or not.

a. 3/10 net 50

b. 2/10 net 70

c. 4/20 net 45

d. 6/15 net 95

Reference no: EM132434451

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