2. 20% Due October 18 2004
Part A Zahra industries
study (10 Marks)
No growth and growth stages
Managing inventory and cash (seasonal sales)
planning production volumes.
Long term to short term matching assets and
Asset liquidity and type of financing
Zahra Industries is a manufacturer of UAE heritage style
camping equipment specifically for the gulf and UAE market. This is an industry with highly seasonal sales. i.e sales occur in the months October to
March with peak sales in November and December.
Zahra used to be in a no growth situation where assets at
the end of the year were roughly equal to assets at the start of the year. Happily Zahra has been able to increase it’s
sales substantially in the last year due to increased interest in tourism in Dubai area. This has
raised some challenges for Zahra as it now has to consider how it finances this
increase in “permanent current assets”
To make the most efficient use of manufacturing plant and
labor, Zahra has implemented a level or constant production schedule during the
whole year. ( Except in July where most employees go on holiday and production
actually ceases for one month)
A sales forecast and production schedule are shown below as
is the cash budget.
how Zahra could use long term or short term financing and the different
effects these would have. (2 marks)
the many financing options that Zahra has and describe how a choice might
be made. You might find a diagram
useful in helping you with this. (2 marks)
the data given (cash budget etc) produce graphs to illustrate the nature
of asset growth for Zahra industries.
Comment on the growth of current assets and the financing effects
of this. (4 marks)
how interest rate structure (Long term and Short Term rates) might affect
the financing decision of Zahra industries. (4 marks)
Part B Cash and Accounts
Managing cash and accounts receivable
Managing cash levels and AR
Terms of trade
how Zahra industries can manage its float to its benefit.
In your answer be sure to mention;
collections, disbursements, electronic funds transfer. (2 marks)
that Zahra industries has a return of 16% on it is accounts receivable
(after taking into account bad debts) and that Zahra can loan money at 6%
from the bank and that Accounts Payable have as cost of 8%, that Zahra can
invest in short term securities and that inventory return 12%, devise a
policy for managing Accounts receivable, in your answer discuss each of
the following , credit standards, terms of trade, and collection policy
and consider these on coming to a decision on a credit policy for
Zahra. (4 marks)
factoring as an accounts receivable management strategy and comment on the
benefits or disadvantages of Zahra using factoring. (2 marks).
the economic order quantity for Zahra based on order cost and carry cost
to be given you by your
teacher. Comment on hour Zahra can
use this to help manage inventory.
How could the use of e-business solutions including possibly JIT
management be used to improve this? (2 marks)
Chapter 6, 7, 8
Block and Hirt, Foundations of Financial Management