| Course | FIN-3010 Principles of Finance |
|---|---|
| Module | Module 7 |
| Paper type | Written assignment 7: current assets, short-term liabilities, term debt and leasing |
| Length | About 719 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Bachelor of Science in Business Administration |
| Updated | October 2026 |
Free sample paper for FIN 3010 Module 7
Managing Working Capital and Financing Equipment: Cash Cycle, Trade Credit, EOQ, Loan Costs and Lease or Buy
Student Name
Bachelor of Science in Business Administration, Thomas Edison State University
FIN-3010: Principles of Finance
Mentor Name
Month Day, Year
Managing Working Capital and Financing Equipment: Cash Cycle, Trade Credit, EOQ, Loan Costs and Lease or Buy
The last corporate finance module turns from long-term investment to the management of current assets, short-term liabilities, intermediate-term debt and leases. The problems below continue with the same Camden County molder analyzed in Modules 5 and 6, which had sales of $5.4 million and cost of goods sold of $3.9 million last year. Each problem shows its formula and work (Mayo & Lavelle, 2024).
Problem 1: Cash Conversion Cycle
Year-end balances were inventory of $620,000, accounts receivable of $740,000 and accounts payable of $410,000.
| Measure | Calculation | Days |
|---|---|---|
| Days inventory outstanding | $620,000 / $3,900,000 x 365 | 58.0 |
| Days sales outstanding | $740,000 / $5,400,000 x 365 | 50.0 |
| Days payables outstanding | $410,000 / $3,900,000 x 365 | 38.4 |
| Cash conversion cycle | 58.0 + 50.0 minus 38.4 | 69.7 |
Delair's cash is tied up for about 70 days between paying suppliers and collecting from customers. Research suggests that matters for profit, not only liquidity. Deloof (2003) studied large Belgian firms and found that gross operating income was negatively related to the number of days in accounts receivable, inventories and accounts payable, which suggests managers can raise profitability by shortening collection and inventory periods.
Problem 2: The Cost of Forgoing a Trade Discount
Delair's resin supplier offers terms of 2/10, net 30. If Delair skips the discount and pays on day 30, what is it effectively paying for 20 more days of credit?
| Step | Work |
|---|---|
| Formula | Cost = [discount / (100 minus discount)] x [365 / (credit period minus discount period)] |
| Calculation | (2 / 98) x (365 / 20) = 0.020408 x 18.25 |
| Answer | 37.24% simple annual rate; compounded, about 44.6% |
Unless Delair has no other source of funds, skipping the discount is far more expensive than its bank line. Petersen and Rajan (1997) found that firms rely more heavily on costly trade credit when they cannot obtain enough credit from financial institutions, which is why a good banking relationship can pay for itself through captured discounts.
Problem 3: Economic Order Quantity
Delair uses 1,200,000 pounds of resin a year. Each order costs $250 to place and receive, and holding a pound in inventory for a year costs $0.42.
| Step | Work |
|---|---|
| Formula | EOQ = square root of (2 x D x S / H) |
| Calculation | square root of (2 x 1,200,000 x $250 / $0.42) = square root of 1,428,571,429 |
| Answer | About 37,800 pounds per order, or roughly 32 orders a year |
Problem 4: Effective Rate on a Bank Loan
The bank offers a $500,000 line at 7% but requires a 10% compensating balance kept in a non-interest-bearing account.
| Step | Work |
|---|---|
| Formula | Effective rate = stated rate / (1 minus compensating balance) |
| Calculation | 7% / 0.90 |
| Answer | 7.78%; only $450,000 of the loan is usable |
Problem 5: Lease or Buy
Delair needs a $600,000 granulator for five years. It can borrow at 7% to buy it and depreciate it straight-line to zero, or lease it for $140,000 a year, with each payment due when its lease year begins. With a 25% tax rate, the after-tax cost of borrowing, 5.25%, is the discount rate.
| Alternative | Cash flows | Present value of cost |
|---|---|---|
| Lease | After-tax payment of $105,000 at the start of years 1 through 5 | $475,173 |
| Buy | $600,000 today less the tax shield of $30,000 a year on $120,000 depreciation, years 1 through 5 | $471,008 |
| Difference | Lease minus buy | Leasing costs $4,165 more |
Buying is slightly cheaper in present value terms, but the margin is small enough that other factors matter: a lease may include maintenance, preserve the bank line for working capital and make it easier to upgrade if technology changes. If the lease included maintenance worth more than about $1,200 a year before tax, leasing would win.
Bringing the Problems Together
The five problems describe one financial picture. Delair's 70-day cash conversion cycle ties up working capital that it finances partly with expensive supplier credit; capturing discounts through a bank line costing under 8% would save money, and shortening collections would reduce the need to borrow at all. Ordering resin in economic quantities balances ordering and holding costs, and the lease-or-buy analysis shows that intermediate-term financing choices often turn on small differences and non-price terms. Good working capital management frees cash for the long-term investments analyzed in Module 6.
References
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3-4), 573-588. https://doi.org/10.1111/1468-5957.00008
Mayo, H. B., & Lavelle, M. (2024). Basic finance: An introduction to financial institutions, investments, and management (13th ed.). Cengage Learning.
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: Theories and evidence. The Review of Financial Studies, 10(3), 661-691. https://doi.org/10.1093/rfs/10.3.661
What the FIN 3010 Module 7 instructions ask for
The final FIN-3010 written assignment covers the management of current assets, short-term liabilities, intermediate-term debt and leasing. Its textbook exercises typically include the cash conversion cycle, the cost of trade credit, inventory models such as economic order quantity, the effective cost of bank loans, and lease-versus-buy comparisons. As before, each answer should carry its exercise reference and its full working. After this assignment, the remaining major task is the final paper, a financial analysis of a publicly traded company that needs research through the New Jersey State Library, so apply for library access early. Check whether lease payments fall at the beginning or end of each year.
How the FIN 3010 Module 7 example is put together
The five problems share one company's figures, so they add up to a single picture of its working capital and financing. Each problem states the inputs, formula and calculation in a small table and ends with an interpretation sentence. Two problems connect their results to research: the cash conversion cycle to a study linking working capital to profitability, and the trade discount to a study of when firms rely on supplier credit. The lease-versus-buy problem shows the after-tax discount rate explicitly and identifies how much a service feature would have to be worth to change the answer. A closing paragraph ties the five results together. Each result is interpreted in a sentence before the next problem.
FIN 3010 Module 7 rubric: what earns full marks
Grading follows the course pattern: the right formula, the right inputs, visible steps and a labeled answer. Frequent deductions include using sales instead of cost of goods sold in inventory and payables days, using the wrong period in the trade credit formula, and discounting lease payments at the pre-tax rate. Lease-versus-buy answers should state the discount rate and the timing of payments. Brief interpretation shows understanding and prepares you for the final paper, which asks for an evidence-based opinion about a real company's financial soundness. Mentors also reward noting non-price terms in lease decisions. Clear statements of timing, such as when lease payments fall, prevent the most common lease errors.
FIN 3010 Module 7 help: mistakes that cost marks
In cash conversion cycle problems, check which denominator each measure uses: receivables days use sales, while inventory and payables days usually use cost of goods sold. For trade credit, the period in the formula is the extra days of credit, not the full credit period. EOQ uses the annual holding cost per unit, not per order. In compensating balance problems, divide by the usable share of the loan. For leases, use the after-tax cost of debt and watch whether payments fall at the start or end of each year. Our tutors can review your Module 7 exercises with you before you submit them. Recheck which denominator each day count uses before you add the cycle up.
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FIN 3010 Module 7 questions, answered
Where can I find a free FIN 3010 Module 7 sample paper?
The five working capital and leasing problems are solved above: five original problems on the cash conversion cycle, trade credit cost, EOQ, a loan's effective rate and lease versus buy, with interpretation and research.
How is the cost of forgoing a trade discount calculated?
Divide the discount percentage by 100 minus the discount, then multiply by 365 divided by the extra days of credit gained by not paying early.
What is the cash conversion cycle?
Days inventory outstanding plus days sales outstanding minus days payables outstanding: the time cash is tied up in operations.
Why use the after-tax cost of debt in a lease analysis?
Leasing is an alternative to borrowing, and both lease payments and interest are tax deductible, so the after-tax borrowing rate reflects the true comparison.
What is the FIN-3010 final paper?
A financial analysis of a publicly traded company, examining several financial factors and giving an evidence-based opinion on its financial soundness.