Problems in Working Capital Management

1) Perlas Company borrowed from a bank an amount of ₱1,000,000.00. The bank charged a 12%
stated rate in an add-on arrangement, payable in 12 equal monthly installments.
A. 22.15%
B. 24%
C. 25.05%
D. 12.70%

Answer: A

Solution:

Interest for 1 year (₱ 1M x 12%) ₱ 120,000.00

Average Principal ([₱ 1M + (1M / 120] ÷ 2) 541,667.00

Estimated Effective Rate (120,000 / 541,667) 22.15%

----------------------------------------------OR-----------------------------------------------------------

(2 x No. of Payments x Interest) ÷ [(1 + No. Payments) x Prinicipal

(2 x 12 x ₱ 120,000.00) ÷ (13 x ₱1M)

= 22.15%

2) Julie Company sells on terms 3/10, net 30. Total Sales for the year are ₱ 900,000. Forty percent
of the customers pay on the tenth day and take discounts; the other 60% pay, on average, 45 days
after their purchases. What is the average amount of receivables?
A. ₱ 70,000.00
B. ₱ 77,500.00
C. ₱ 77,200.00
D. ₱ 67,500.00

Answer: B

Solution:

DSO = (.4 x 10) + (.60 x 45) 31 days

Average AR (900,000/360 x 31 days) ₱ 77,500.00