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Question 1

Income statement data:

Sales

Cost of goods sold

Balance sheet data:

Inventory

Accounts receivable

Accounts payable

You received credit for this question in a previous attempt

$ 6,700 5,900

$ 660

280

440

Calculate the accounts receivable period, accounts payable period, inventory period, and cash conversion cycle for the above firm: (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 1 decimal place.)

Question 2

A firm sells its $1,010,000 receivables to a factor for $969,600. The average collection period is 1 month. What is the effective annual rate on this arrangement? (Round your intermediate calculations to 4 decimal places. Round your answer to 2 decimal places.)

Question 3

A firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $11,000. It will offer more liberal sales terms, but this will result in average receivables increasing to $66,000. These actions are expected to increase sales to $810,000 per year, and cost of goods will remain at 70% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase to $36,000. What effect will these changes have on the firm’s cash conversion cycle? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question 4

Complete the statement of sources and uses of cash from the following entries:

Question 5

Here is a forecast of sales by National Bromide for the first 4 months of 2012 (figures in thousands of dollars):

Question 6

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. What will be orders in each quarter of the year if the sales forecasts for the next five quarters are as follows:

Question 7

Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Question 8

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Question 9

Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Question 10

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Sales forecast $500 $490 $460 $510 $510

The firm pays for its goods with a 1month delay. Therefore, on average, twofourths of purchases are paid for in the quarter that they are purchased, and twofourths are paid in the following quarter.

Paymore’s customers pay their bills with a 2month delay. Therefore, on average, twofourths of sales are collected in the quarter that they are sold, and twofourths are collected in the following quarter. Assume that sales in the last quarter of the previous year were $460.

Paymore’s labor and administrative expenses are $62 per quarter and that interest on longterm debt is $40 per quarter.

Suppose that Paymore’s cash balance at the start of the first quarter is $19 and its minimum acceptable cash balance is $40. Work out the shortterm financing requirements for the firm in the coming year. The firm pays no dividends. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

Question 11

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Sales forecast $510 $500 $470 $520 $520

The firm pays for its goods with a 1month delay. Therefore, on average, threefourths of purchases are paid for in the quarter that they are purchased, and onefourth are paid in the following quarter.

Paymore’s customers pay their bills with a 2month delay. Therefore, on average, twofourths of sales are collected in the quarter that they are sold, and twofourth are collected in the following quarter. Assume that sales in the last quarter of the previous year were $470.

Paymore’s labor and administrative expenses are $70 per quarter and that interest on longterm debt is $42 per quarter.

Suppose that cash balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $50.

Now assume that Paymore can borrow up to $100 from a line of credit at an interest rate of 2% per quarter. Prepare a shortterm financing plan. Refer Spreadsheet 19.3 (Negative amounts should be indicated by a minus sign. Leave no cells blank be certain to enter “0” wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Question 12

Recalculate Dynamic Mattress’s financing plan (Spreadsheet 19.3) assuming that the firm wishes to maintain a minimum cash balance of $25 million instead of $20 million. Assume the firm can convince the bank to extend its line of credit to $65 million. (Negative amounts should be indicated by a minus sign. Leave no cells blank be certain to enter “0” wherever required. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)

Question 13

Company X sells on a 1/20, net 90, basis. Customer Y buys goods with an invoice of $2,500.

Question 14

a 1. A firm currently offers terms of sale of 3/15, net 30. Calculate the effective annual rate. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

a 2. Calculate the effective annual rate if the terms are changed to 4/15, net 30. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

a 3. What effect will part (a 2) have on the implicit interest rate charged to customers that pass up the cash discount?

b 1. Calculate the effective annual rate if the terms are changed to 3/25, net 30. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

b 2. What effect will this have on the implicit interest rate charged to customers that pass up the cash discount?

c 1. Calculate the effective annual rate if the terms are changed to 3/15, net 20. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

c 2. What effect will this have on the implicit interest rate charged to customers that pass up the cash discount?

Question 14

On January 25, Coot Company has $320,000 deposited with a local bank. On January 27, the company writes and mails checks of $27,000 and $67,000 to suppliers. At the end of the month, Coot’s financial manager deposits a $52,000 check received from a customer in the morning mail and picks up the end of month account summary from the bank. The manager notes that only the $27,000 payment of the 27th has cleared the bank. What is the company’s ledger balance and available balance with its bank?

Question 16

General Products writes checks that average $29,000 daily. These checks take an average of 6 days to clear. It receives payments that average $31,000 daily. It takes 3 days before these checks are available to the firm.

Question 17

Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock box system. She forecasts that 600 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $.40 a check. The interest rate is .013% per day.

Question 18

A firm offers terms of 3/15, net 45. Currently, two thirds of all customers take advantage of the trade discount; the remainder pay bills at the due date.

Question 19

Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $90, and the cost per carton is $60. The unit sales will increase from 1,040 cartons to 1,100 per month.

Question 20

Locust Software sells computer training packages to its business customers at a price of $103. The cost of production (in present value terms) is $97. Locust sells its packages on terms of net 30 and estimates that about 5% of all orders will be uncollectible. An order comes in for 30 units. The interest rate is 3% per month.

Question 21

The Branding Iron Company sells its irons for $210 apiece wholesale. Production cost is $200 per iron. There is a 15% chance that a prospective customer will go bankrupt within the next half year. The customer orders 1,000 irons and asks for 6 months’ credit. Assume an 9% per year discount rate, no chance of a repeat order, and that the customer will pay either in full or not at all.

Question 22

A firm currently makes only cash sales. It estimates that allowing trade credit on terms of net 30 would increase monthly sales from 120 to 130 units per month. The price per unit is $101, and the cost (in present value terms) is $70. The interest rate is 1% per month.

Question 23

Sherman’s Sherbet currently takes about 5 days to collect and deposit checks from customers. A lock box system could reduce this time to 3 days. Collections average $40,000 daily. The interest rate is .02% per day.

Question 24

The financial manager of JAC Cosmetics is considering opening a lock box in Pittsburgh. Checks cleared through the lock box will amount to $450,000 per month. The lock box will make cash available to the company 2 days earlier.

Question 25