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How much additional financing does the firm need

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Reference no: EM133071508

Start-up firm and net working capital financing 

  • Consider a firm planning to expand sales by $36m/year.
  • It requires additional facilities of $2m. Typically, the firm produces with 90 days of inventory (largely raw materials).
  • The firm offers its customers an average of 90 days credit (Average Collection Period) and gets 30 days credit from suppliers.
  • Purchases account for 50% of every dollar sold. Other expenses are 20% of sales.
  • Assume that purchases occur at the beginning of the month, and sales at the end of the month.
  • The firm currently has excess cash balances of $5m. It needs to keep cash balances of 10% of monthly sales.

How much additional financing does the firm need and when?

Reference no: EM133071508

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