57.
|
Which one of the following statements is correct?
Refer to section 18.5
|
AACSB: Analytic
Blooms: Remember Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Short-term borrowing |
58.
|
Which of the following are benefits derived from short-term financial planning?
I. having advance notice of when your firm will require external financing II. being able to determine the extent of time for which a loan is required III. having the ability to time capital expenditures in order to place the least financial burden possible on a firm IV. knowing for certain what your cash balance will be six months in advance
Refer to section 18.6
|
AACSB: Analytic
Blooms: Remember Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.6 Topic: Short-term financial plan |
59.
|
Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $36,000 and an ending inventory of $47,000. What is the length of the inventory period?
Inventory turnover = $601,000/[($36,000 + $47,000)/2] = 14.481928
Inventory period = 365/14.481928 = 25.20 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Inventory period |
60.
|
A national firm has sales of $729,000 and cost of goods sold of $478,000. At the beginning of the year, the inventory was $37,000. At the end of the year, the inventory balance was $41,000. What is the inventory turnover rate?
Inventory turnover = $478,000/[($37,000 + $41,000)/2] = 12.26 times
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Inventory turnover |
61.
|
North Side Wholesalers has sales of $948,000. The cost of goods sold is equal to 68 percent of sales. The firm has an average inventory of $23,000. How many days on average does it take the firm to sell its inventory?
Inventory turnover = ($948,000 × 0.68)/$23,000 = 28.027826
Inventory period = 365/28.027826 = 13.02 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Inventory period |
62.
|
The Bear Rug has sales of $811,000. The cost of goods sold is equal to 63 percent of sales. The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000. How long on average does it take the firm to collect its receivables?
Receivables turnover = $811,000/[($41,000 + $38,000)/2] = 20.53165
Receivables period = 365/20.53165 = 17.78 Days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Accounts receivable period |
63.
|
The Blue Star has sales of $387,000, costs of goods sold of $259,000, average accounts receivable of $12,100, and average accounts payable of $12,600. How long does it take for the firm's credit customers to pay for their purchases?
Receivables turnover = $387,000/$12,100 = 13.983471
Receivables period = 365/13.983471 = 11.41 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Accounts receivable period |
64.
|
The Mountain Top Shoppe has sales of $512,000, average accounts receivable of $31,400 and average accounts payable of $24,800. The cost of goods sold is equivalent to 71 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers?
Payables turnover = ($512,000 × 0.71)/$24,800 = 14.6581
Payables period = 365/14.6581 = 24.90 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Accounts payable period |
65.
|
HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100. Sales for the period were $610,000 and costs of goods sold were $458,000. What is the payables turnover rate?
Payables turnover = $458,000/[($57,300 + $55,100)/2] = 8.15 times
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Accounts payable turnover |
66.
|
Your firm has an inventory turnover rate of 14, a payables turnover rate of 8, and a receivables turnover rate of 19. How long is your firm's operating cycle?
Inventory period = 365/14 = 26.07 days
Accounts receivable period = 365/19 = 19.21 days Operating cycle = 26.07 + 19.21 days = 45.28 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Operating cycle |
67.
|
Merryl Enterprises currently has an operating cycle of 59 days. The firm is analyzing some operational changes, which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days. The accounts payable turnover rate is expected to increase from 42 to 46 times per year. If all of these changes are adopted, what will the firm's new operating cycle be?
Operating cycle = 59 + 2 - 5 = 56 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Operating cycle |
68.
|
On average, Furniture & More is able to sell its inventory in 27 days. The firm takes 87 days on average to pay for its purchases. On the other hand, its average customer pays with a credit card which allows the firm to collect its receivables in 4 days. Given this information, what is the length of operating cycle?
Operating cycle = 27 + 4 = 31 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Operating cycle |
69.
|
Interior Designs has an inventory period of 51 days, an accounts payable period of 38 days, and an accounts receivable period of 32 days. Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount. If the new discount is taken, the accounts payable period is expected to decline by 26 days. If the new discount is taken, the operating cycle will be _____ days.
Original operating cycle = 51 + 32 = 83 days; The operating cycle will not change as the accounts payable period does not affect the operating cycle, only the cash cycle.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Operating cycle |
70.
|
Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle?
Cash cycle = (365/18) + 53 - 68 = 5.28 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Cash cycle |
71.
|
West Chester Automation has an inventory turnover of 17.5 and an accounts payable turnover of 11. The accounts receivable period is 36 days. What is the length of the cash cycle?
Cash cycle = (365/17.5) + 36 - (365/11) = 23.68 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Cash cycle |
72.
|
Peterson's Antiquities currently has a 31 day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, decreases its inventory period by 3 days, and decreases its payables period by 4 days. What will the length of the cash cycle be after these changes?
Cash cycle = 31 - 2 - 3 + 4 = 30 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Cash cycle |
73.
|
A company currently has a 51 day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, increases its inventory period by 3 days, and increases its payables period by 4 days. What will the length of the cash cycle be after these changes?
Cash cycle = 51 - 2 + 3 - 4 = 48 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Cash cycle |
74.
|
Tall Guys Clothing has a 45 day collection period. Sales for the next calendar year are estimated at $2,100, $1,600, $2,500 and $2,300, respectively, by quarter, starting with the first quarter of the year. Given this information, which one of the following statements is correct? Assume a year has 360 days.
Q4 collections = 45/90 ($2,500) + 45/90 ($2,300) = $2,400
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash collections |
75.
|
Forest Gardens, Inc., has a beginning receivables balance on February 1 of $730. Sales for February through May are $720, $780, $820, and $850, respectively. The accounts receivable period is 30 days. What is the amount of the April collections? Assume a year has 360 days.
In April, the firm would collect March sales of $780.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash collections |
76.
|
Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of January through April, respectively. The accounts receivable period is 28 days. What is the accounts receivable balance at the end of March? Assume a year has 360 days.
March ending receivables = (28/30) $450 = $420
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Accounts receivable balance |
77.
|
The Athletic Sports Store has a beginning receivables balance on January 1 of $410. Sales for January through April are $440, $480, $690, and $720, respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of April? Assume a year has 360 days.
April collections = February sales = $480
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash collections |
78.
|
Breakwater Aquatics has a 45 day accounts receivable period. The estimated quarterly sales for this year, starting with the first quarter, are $6,800, $7,100, $8,200, and $6,400, respectively. What is the accounts receivable balance at the beginning of the third quarter? Assume a year has 360 days.
A/R Begin Q3 = A/R End Q2 = (45/90) $7,100 = $3,550
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Accounts receivable balance |
79.
|
The Dog House expects sales of $560, $650, $630, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August?
August collections = 0.20($610) + 0.70($630) + 0.08($650) = $615
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash collections |
80.
|  The Wire House purchases its inventory one quarter prior to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of quarter one is $62,000. What is the amount of the expected disbursements for quarter two given the following expected quarterly sales?
Q2 disbursements = [(45/90) (0.55) $36,000] + [(45/90) (0.55) $43,000] = $21,725
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash disbursements |
81.
|
Nadine's Boutique has a 30 day accounts payable period. The firm has expected quarterly sales of $1,100, $1,400, $1,600, and $2,100, respectively, for next year. The quarterly cost of goods sold is equal to 68 percent of the next quarter's sales. The firm has a beginning accounts payable balance of $550 as of Quarter 1. What is the amount of the projected cash disbursements for accounts payable for Quarter 3 of the next year? Assume a year has 360 days.
Disbursement = [(30/90) × (0.68 × $1,600)] + [(60/90) × (0.68 × $2,100)] = $1,315
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash disbursements |
82.
|
Kid's Delight expects to sell $8,200 worth of toys in December, $3,700 worth in January, $4,400 in February, and $6,100 in March. The wholesale cost is 72 percent of the retail price. The firm has a receivables period of 30 days, a payables period of 60 days, and buys inventory one month prior to selling it. Which one of the following statements is correct?
January ending A/P balance = 0.72($3,700) + 0.72($4,400) = $5,832
|
AACSB: Analytic
Blooms: Apply Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Accounts payable balance |
83.
|
As of the beginning of the quarter, Swenson's, Inc. had a cash balance of $460. During the quarter, the company collected $480 from customers and paid suppliers $360. The company also paid an interest payment of $20 and a tax payment of $110. In addition, the company repaid $140 on its long-term debt. What is Callahan's cash balance at the end of the quarter?
Cash balance = $460 + $480 - $360 - $20 - $110 - $140 = $310
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash balance |
84.
|
On May 1, your firm had a beginning cash balance of $175. Your sales for April were $430 and your May sales were $480. During May, you had cash expenses of $110 and payments on your accounts payable of $290. Your accounts receivable period is 30 days. What is your firm's beginning cash balance on June 1?
Cash balance = $175 - $110 - $290 + $430 = $205
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash balance |
85.
|
The Mish Mash Store has a beginning cash balance of $440 on March 1. The firm has projected sales of $610 in February, $680 in March, and $740 in April. The cost of goods sold is equal to 70 percent of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 10 days. The firm has monthly cash expenses of $125. What is the projected ending cash balance at the end of March? Assume every month has 30 days.
March collections = (10/30) $610 + (20/30) $680 = $657
March disbursements for payables = 0.70 ($680) = $476 March ending cash balance = $440 + $657 - $476 - $125 = $496 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash balance |
86.
|
Fancy Footwear has a line of credit with a local bank in the amount of $80,000. The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent, which is based on the total amount borrowed. The compensating balance will be deposited into an interest-free account. What is the effective interest rate on the loan if the firm needs to borrow $75,000 for one year to cover operating expenses?
Amount borrowed = $75,000/(1 - 0.05) = $78,947.37
Annual interest = $78,947.37 × 0.07 = $5,526.32 Effective interest rate = $5,526.32/$75,000 = 7.37 percent |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Interest rate with compensating balance |
87.
|
Juno Industrial Supply has a $150,000 line of credit with a 7.5 percent interest rate. The loan agreement requires a 2 percent compensating balance, which is based on the total amount borrowed, and which will be held in an interest-free account. What is the effective interest rate if the firm borrows $90,000 on the line of credit for one year?
Amount borrowed = $90,000/(1 - 0.02) = $91,836.73
Annual interest = $91,836.73 × 0.075 = $6,887.76 Effective interest rate = $6,887.76/$90,000 = 7.65 percent |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Interest rate with compensating balance |
88.
|
Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account. What is the effective annual interest rate if the firm borrows $35,000 for one year?
Amount borrowed = $35,000/(1 - 0.04) = $36,458.33
Annual interest = $36,458.33 × 0.08 = $2,916.67 Effective interest rate = $2,916.67/$35,000 = 8.33 percent |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Effective interest with compensating balance |
89.
|
The Delta Fish Hatchery factors its accounts receivables immediately at a 2 percent discount. The average collection period is 34 days. Assume that all accounts are collected in full. What is the effective annual interest rate on this arrangement?
Interest rate for 34 days = 0.02/(1 - 0.02) = 0.020408163
Number of periods per year = 365/34 = 10.735294 Effective annual rate = 1. 02040816310.735294 - 1 = 24.22 percent |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Accounts receivable factoring |
90.
|
New York Bank provides Food Canning, Inc. a $250,000 line of credit with an interest rate of 1.75 percent per quarter. The credit line also requires that 1 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Food Canning, Inc.'s short-term investments are paying 1.2 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.
Effective annual interest = (1.012)4 - 1 = 4.89 percent
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Rate on unused credit line |
91.
|
The Sports Store has a $100,000 line of credit with City Bank. The loan agreement requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. The interest rate on the borrowed funds is 1.75 percent per quarter. The Sport Store's short-term investments are paying 1.5 percent per quarter. What is the effective annual interest rate on the line of credit if The Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.
Effective annual interest = (1.0175)4 - 1 = 7.19 percent
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Rate on unused credit line |
92.
|
Your bank offers you a $40,000 line of credit with an interest rate of 1.75 percent per quarter. The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 0.20 percent per month. What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.
Effective annual interest = (1.002)12 - 1 = 2.43 percent
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Rate on unused line of credit |
93.
|
New Town Bank offers you a $40,000 line of credit with an interest rate of 1.6 percent per quarter. The loan agreement also requires that 3 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Short-term investments are currently paying 1.1 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire $40,000 for one year? Assume any funds borrowed or invested use compound interest.
Effective annual interest = (1.016)4 - 1 = 6.56 percent
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Short-term borrowing |
94.
|
Josie's Craft Shack has a beginning cash balance for the quarter of $1,126. The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance. Currently, the firm has a loan balance of $480. How much will the store borrow or repay if the net cash flow for the quarter is -$280?
Cash deficit = $1,126 - $280 - $1,000 = -$154.
The firm needs to borrow $154. |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.6 Topic: Minimum cash balance |
95.
|
The Cement Works has a beginning cash balance for the quarter of $784. Susie, the firm's president, requires that a minimum cash balance of $900 be maintained and requires that borrowing be used to maintain that balance. If funds have been borrowed, then she requires that those loans be repaid as soon as excess funds are available. Currently, the firm has a loan outstanding of $1,260. How much will the firm borrow or repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements are $3,774?
Cash surplus = $784 + $3,918 - $3,774 - $900 = $28.
The firm will repay $28 this quarter. |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.6 Topic: Short-term financial plan |
96.
|
At the beginning of the year, you have an outstanding short-term loan of $274 which was used to cover your cash needs for the previous year. The interest expense for the year is $19. The projected net cash flow for this year is $123, prior to any payment of principal or interest on this loan. What is your anticipated loan balance at year end?
Loan balance = $274 + $19 - $123 = $170
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.6 Topic: Short-term financial plan |
97.
|
Details Corp. has a book net worth of $8,150. Long-term debt is $1,800. Net working capital, other than cash, is $2,150. Fixed assets are $2,000. How much cash does the company have?
Cash = $8,150 + $1,800 - $2,150 - $2,000 = $5,800
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-2 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.1 Topic: Cash equation |
98.
|
The Wake-Up Coffee Company has projected the following quarterly sales amounts for the coming year:
 Accounts receivable at the beginning of the year are $200. Wake-Up has a 60-day collection period. What is the amount of the accounts receivable balance at the end of Quarter 3?
A/R Q3 end = (60/90) × $750 = $500
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-5 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.3 Topic: Accounts receivable balance |
99.
|
Consider the following financial statement information for the Bulldog Icers Corporation:
 How long is the cash cycle?
Inventory turnover = $58,638/[($9,338 + $11,550)/2] = 5.6145 times
Inventory period = 365/5.6145 = 65.01 days Receivables turnover = $82,544/[($5,670 + $6,947)/2] = 13.0846 times Receivables period = 365/13.0846 = 27.9 days Payables turnover = $58,638/[($7,689 + $9,625)/2] = 6.7735 times Payables period = 365/6.7735 = 53.89 days Cash cycle = 65.01 + 27.9 - 53.89 = 39.0 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-6 Learning Objective: 18-01 The operating and cash cycles and why they are important. Section: 18.2 Topic: Cash cycle |
100.
|
Your firm has an average collection period of 42 days. Current practice is to factor all receivables immediately at a 4 percent discount. Assume that default is extremely unlikely. What is the effective cost of borrowing?
Number of periods = 365/42 = 8.6905
EAR = {1 + [0.04/(1 - 0.04)]8.6905 - 1 = 42.58 percent |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-7 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Factoring receivables |
101.
|
Workout Together has projected the following sales for the coming year:
 Sales in the year following this one are projected to be 18 percent greater in each quarter. Assume the firm places orders during each quarter equal to 35 percent of projected sales for the next quarter. How much will the firm pay to its suppliers in Quarter 2 if its accounts payable period is 60 days?
Q2 payments = (60/90) × 0.35 × $800 + (30/90) × 0.35 × $900 = $291.67
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-8 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Payments |
102.
|
The Thunder Dan's Corporation's purchases from suppliers in a quarter are equal to 65 percent of the next quarter's forecasted sales. The payables period is 60 days. Wages, taxes, and other expenses are 16 percent of sales, and interest and dividends are $60 per quarter. No capital expenditures are planned. Sales for the first quarter of the following year are projected at $720. The projected quarterly sales are:
 What is the amount of the total disbursements for Quarter 2?
Payment of accounts = (60/90) × 0.65 × $660 + (30/90) × 0.65 × $590 = $413.83
Total disbursements = $413.83 + (0.16 × $660) + $60 = $579.43 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-9 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Payments |
103.
|
The following is the sales budget for Duck-n-Run, Inc., for the first quarter of 2012:
 The accounts receivable balance at the end of the previous quarter was $45,000 ($32,000 of which was uncollected December sales.) What is the amount of the January collections?
January collections = 0.53 × $120,000 + (0.28/0.47) × $32,000 + $45,000 - $32,000 = $95,663.83
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-10 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash collections |
104.
|
Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2012:
 The company predicts that 3 percent of its credit sales will never be collected, 36 percent of its sales will be collected in the month of sale, and the remaining 61 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase. In March 2012, credit sales were $302,400, and credit purchases were $224,640. The April 1 cash balance was $403,200. What is the cash balance at the end of May?
April cash balance = $403,200 + (0.36 × $547,200) + (0.61 × $302,400) - $224,640 - $57,240 - $16,410 - $119,520 = $366,846
May cash balance = $366,846 + (0.36 × $570,240) + (0.61 × $547,200) - $211,680 - $69,420 - $16,410 - $131,040 = $477,374 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-11 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.4 Topic: Cash budget |
105.
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You've worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is 0.5 percent per month. In addition, 7 percent of the amount that you borrow must be deposited in a non-interest bearing account. Assume your bank uses compound interest on its line of credit loans. What is the effective annual interest rate on this lending arrangement?
Monthly interest = $50,000,000 (0.005) = $250,000
Amount received = (1 - 0.07) $50,000,000 = $46,500,000 Periodic interest = $250,000/$46,500,000 = 0.00537634 EAR = (1 + 0. 00537634)12 - 1 = 6.65 percent |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-13 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Cost of borrowing |
106.
|
A bank offers your firm a revolving credit arrangement for up to $115 million at an interest rate of 2 percent per quarter. The bank also requires you to maintain a compensating balance of 5 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.3 percent per quarter, and assume the bank uses compound interest on its revolving credit loans. What is the effective annual interest rate on the revolving credit arrangement if your firm does not borrow any money during the year?
EAR = (1 + 0.013)4 - 1 = 5.30 percent
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 18-14 Learning Objective: 18-03 The essentials of short-term financial planning. Section: 18.5 Topic: Cost of borrowing |
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