Working Capital Requirements
Suppose that in Example 10.1 the tool manufacturing company’s annual revenue projection of $100,000 is based on an annual volume of 10,000 units (or 833 units per month). Assume the following accounting information:
The accounts receivable period of 60 days means that revenues from the current month’s sales will be collected two months later. Similarly, accounts payable of 30 days indicates that payment for materials will be made approximately one month after the materials are received. Determine the working capital requirement for this operation.