- 20 Marks
FM – NOV 2016 – L2 – Q2 – Working Capital Management
Discusses the causes of overcapitalization and overtrading, advises on credit policy changes, and explains stock splits and scrip issues.
Question
a) Explain THREE causes each of the following situations:
i) Overcapitalized (3 marks)
ii) Overtrading (3 marks)
b) SAP Petroleum Ltd is considering relaxing its credit policy to boost sales. The change will increase the average collection period from 30 days to 60 days. The review is expected to increase sales by 25%. The current annual sales are GH¢ 6,000,000. Selling price per litre is GH¢ 30, variable cost per litre is GH¢ 27, and additional stock level is GH¢250,000.
Required:
i) Advise on whether to extend the period to customers if all customers take the longer credit of 2 months. (5 marks)
ii) Advise if existing customers do not change their payment terms and only new ones take the longer credit. (4 marks)
c) i) Explain the concepts of stock split and scrip issue and identify the main difference between the two. (3 marks)
ii) Explain why a company will embark on a scrip issue. (2 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Credit Policy, Overcapitalization, Overtrading, Scrip Issue, Stock Split
- Level: Level 2
- Topic: Working Capital Management
- Series: NOV 2016
- 20 Marks
FM – NOV 2016 – L2 – Q2 – Working Capital Management
Discusses the causes of overcapitalization and overtrading, advises on credit policy changes, and explains stock splits and scrip issues.
Question
a) Explain THREE causes each of the following situations:
i) Overcapitalized (3 marks)
ii) Overtrading (3 marks)
b) SAP Petroleum Ltd is considering relaxing its credit policy to boost sales. The change will increase the average collection period from 30 days to 60 days. The review is expected to increase sales by 25%. The current annual sales are GH¢ 6,000,000. Selling price per litre is GH¢ 30, variable cost per litre is GH¢ 27, and additional stock level is GH¢250,000.
Required:
i) Advise on whether to extend the period to customers if all customers take the longer credit of 2 months. (5 marks)
ii) Advise if existing customers do not change their payment terms and only new ones take the longer credit. (4 marks)
c) i) Explain the concepts of stock split and scrip issue and identify the main difference between the two. (3 marks)
ii) Explain why a company will embark on a scrip issue. (2 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Credit Policy, Overcapitalization, Overtrading, Scrip Issue, Stock Split
- Level: Level 2
- Topic: Working Capital Management
- Series: NOV 2016