Question
A customer’s average monthly sales are ₹10 lakh,
average inventory is ₹8 lakh, and creditors are ₹6 lakh. If the bank finances 60% of inventory and 70% of receivables (which equal 40% of sales), what is the maximum credit limit?Solution
Receivables = 40% × ₹10 lakh = ₹4 lakh Finance on inventory = 60% × ₹8 lakh = ₹4.8 lakh Finance on receivables = 70% × ₹4 lakh = ₹2.8 lakh Total credit limit = ₹4.8 lakh + ₹2.8 lakh = ₹7.6 lakh
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