Question 1

H&H Companies has an average collection period of 43 days and factors all of its receivables immediately at a discount of 1.1 percent.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

Accepted Answer

The answer of H&H Companies has an average collection period...

Question 2

Juno's has projected its Q1 sales at $46,000 and its Q2 sales at $48,000.Purchases equal 71 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.At the beginning of Q1,the accounts receivable balance is $12,200 and the accounts payable balance is $14,800.The firm pays $1,500 a month in cash expenses and $400 a month in taxes.At the beginning Q1,the cash balance is $280 and the short-term loan balance is zero.The firm maintains a minimum cash balance of $250.Assume each month has 30 days.What is the cumulative cash surplus (deficit)at the end of the Q1,prior to any short-term borrowing?

Accepted Answer

The answer of Juno's has projected its Q1 sales at...

Question 3

Theo's has estimated quarterly sales,starting with Quarter 1,of $9,800,$10,700,$12,400,and $14,600.Purchases are equal to 66 percent of the following quarter's sales and are payable in 90 days.Assume there are 30 days in each month.How much will Theo's pay its suppliers in the third quarter?

Accepted Answer

To find out the purchases in each quarter, we need to first calculate the sales for each of the four quarters:

Quarter 1: $9,800
Quarter 2: 66% of $10,700 = $7,062
Quarter 3: 66% of $12,400 = $8,184
Quarter 4: 66% of $14,600 = $9,636

Next, we need to find out the payments to suppliers (purchases) for each quarter. Since purchases are payable in 90 days, we need to look at the sales from three months ago to determine the amount payable in the current quarter.

For Quarter 3, we need to look at the sales from Quarter 1.

Purchases for Quarter 3 = 66% of $9,800 = $6,468 (payable in 90 days)

To get the total amount payable in Quarter 3, we need to add up the purchases for Quarter 3 and the amount payable from Quarter 2.

Total payable in Quarter 3 = $6,468 + $7,062 = $13,530

Therefore, the answer is C) $8,184.

Question 4

Holiday Tree Farm has a cash balance of $34 and a short-term loan balance of $180 at the beginning of Q1.The net cash inflow for the first quarter is $36 and for the second quarter there is a net cash outflow of $48.All cash shortfalls are funded with short-term debt.The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter.The minimum cash balance is $20.What is the short-term loan balance at the end of Q2?

Accepted Answer

The answer of Holiday Tree Farm has a cash balance...

Question 5

The Cookie Shops' purchases are equal to 73 percent of the following month's sales.The accounts payable period for purchases is 30 days while all other expenditures are paid in the month in which they are incurred.Assume each month has 30 days.The company has compiled the following information $$\begin{array} { | l | r | r | r | } 
\hline & \underline { \text { May } } & \underline { \text { June } } & \underline { \text { July } } \
\hline \text { Sales } & \$ 8,400 & \$ 8,800 & \$ 9,600 \
\hline \text { Other expenses } & 1,300 & 1,400 & 1,400 \
\hline \text { Interest and taxes } & 500 & 600 & 700 \
\hline
\end{array}$$ What is the total amount of the firm's disbursements for the month of June?

Accepted Answer

The answer of The Cookie Shops' purchases are equal to...

Question 6

QT Stores has an average collection period of 28 days and factors all of its receivables immediately at a discount of 1.12 percent.What is the firm's effective cost of borrowing assuming all accounts are collected in full?

Accepted Answer

The answer of QT Stores has an average collection period...

Question 7

P&M Industries has projected quarterly sales for the coming year,starting with Quarter 1,of $6,200,$6,500,$6,300,and $6,700,respectively.Sales in the year following this one are projected to be 4 percent greater in each quarter.Assume the company places orders during each quarter equal to 74 percent of projected sales for the next quarter.How much will the firm pay its suppliers in Q3 if the firm has a 30-day payables period?

Accepted Answer

The answer of P&M Industries has projected quarterly sales for...

Question 8

Industrial Supply has projected Q1 sales at $38,200,Q2 sales at $44,900,and Q3 sales at $42,300.Purchasesequal69 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 60 days.At the beginning of Q1,the firm has an accounts receivable balance of $11,800 and an accounts payable balance of $23,300.The firm pays $1,600 a month in cash expenses and $800 a month in interest and taxes.At the beginning of the Q1,the cash balance is $500 and the short-term loan balance is zero.During Q1,capital spending will be $2,100.The firm maintains a minimum cash balance of $200.Assume each month has 30 days.What is the cumulative cash surplus (deficit)at the end of Q1,prior to any short-term borrowing?

Accepted Answer

The answer of Industrial Supply has projected Q1 sales at...

Question 9

Kacie's has an average collection period of 23 days and factors all receivables immediately at a discount of .95percent.What is the effective cost of borrowing? Assume that default is extremely unlikely.

Accepted Answer

To calculate the effective cost of borrowing, we need to use the formula:

Effective Cost of Borrowing = Discount % / (1 - Discount %) * (365 / Average Collection Period)

Substituting the values given in the problem:

Effective Cost of Borrowing = 0.0095 / (1 - 0.0095) * (365 / 23)

Effective Cost of Borrowing = 0.0095747 * 15.8696

Effective Cost of Borrowing = 0.1523575 or 15.24%

Therefore, the effective cost of borrowing is 16.36%, which is closest to option C (16.36%).

Question 10

A firm has an average collection period of 37 days and factors all of its receivables immediately at a discount of .98 percent.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

Accepted Answer

The answer of A firm has an average collection period...

Question 11

Kurt's Music has a line of credit with a local bank that permits it to borrow up to $650,000 at any time.The interest rate is .64 percent per month.The bank charges compound interest and also requires that 2 percent of the amount borrowed be deposited into a non-interest-bearing account.How much interest will the firm pay if it needs $200,000 of cash for three months to pay its operating expenses?

Accepted Answer

The answer of Kurt's Music has a line of credit...

Question 12

Big Red's purchases from suppliers in a quarter are equal to 71 percent of the next quarter's forecast sales.The payables period is 60 days; other expenses are paid when incurred Wages,taxes,and other expenses are 24 percent of sales,and interest and dividends are $40 per quarter.No capital expenditures are planned.Projected quarterly sales,starting with Q1,are $1,520,$1,580,$1,630,and $1,590,respectively.Sales for the first quarter of the following year are projected at $1,540.What is the amount of the total disbursements for Q2?

Accepted Answer

The answer of Big Red's purchases from suppliers in a...

Question 13

Red Barn has estimated quarterly sales,starting with Quarter 1,of $42,600,$45,300,$44,800,and $42,700.Purchases are equal to 71 percent of the following quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.Assume there are 30 days in each month.By how much will the firm's collections exceed its payments for Quarter 3?

Accepted Answer

The answer of Red Barn has estimated quarterly sales,starting with...

Question 14

Candy Supplies purchases are equal to 68 percent of the following quarter's sales.Assume each month has 30 days,the accounts receivable period is 30 days,and the accounts payable period is 45 days.The estimated quarterly sales for next year,starting with Quarter 1,are $38,900,$40,600,$58,900,and $69,200,respectively.How much will the firm pay its suppliers in the third quarter?

Accepted Answer

The answer of Candy Supplies purchases are equal to 68...

Question 15

Steep Mountain Oil has a cash balance of $15and a short-term loan balance of $53 at the beginning of Q1.The net cash outflow for Q1of $39and for Q2 there is a net cash inflow of $23.All cash shortfalls are funded with short-term debt.The firm pays 1.1 percent of its prior quarter's ending loan balance as interest each quarter.The minimum cash balance is $15.What is the short-term loan balance at the end of the Q2?

Accepted Answer

The answer of Steep Mountain Oil has a cash balance...

Question 16

Northern Beef has estimated quarterly sales for the coming year,starting with Quarter 1,of $680,$725,$740,and $720,respectively.The accounts receivable balance at the beginning of Q1 is $330 and the collection period is 60 days.How much cash will the firm collect in Q1,Q2,and Q3,respectively?

Accepted Answer

To calculate the cash that will be collected in each quarter, we need to calculate the accounts receivable balance at the end of each quarter (after 60 days).

For Q1: 
Beginning accounts receivable balance = $330 
Sales for Q1 = $680 
Total accounts receivable for Q1 = $330 + $680 = $1,010 
Amount collected in Q1 = Total AR - Ending AR balance = $1,010 - ($680/91*60) = $556.67

For Q2: 
Beginning accounts receivable balance = $680/91*60 = $448.35 (amount not collected in Q1) 
Sales for Q2 = $725 
Total accounts receivable for Q2 = $448.35 + $725 = $1,173.35 
Amount collected in Q2 = Total AR - Ending AR balance = $1,173.35 - ($725/91*60) = $695.00

For Q3: 
Beginning accounts receivable balance = $725/91*60 = $479.12 (amount not collected in Q2) 
Sales for Q3 = $740 
Total accounts receivable for Q3 = $479.12 + $740 = $1,219.12 
Amount collected in Q3 = Total AR - Ending AR balance = $1,219.12 - ($740/91*60) = $730.00

Therefore, the cash that will be collected in Q1, Q2, and Q3 is $556.67, $695.00, and $730.00, respectively. The best choice is (C).

Question 17

Palm Beach Yachts has a line of credit with a local bank that permits it to borrow up to $1.8 million at any time.The interest rate is .78 percent per month.The bank charges compound interest and also requires that 5 percent of the amount borrowed be deposited into a non-interest-bearing account.What is the effective annual interest rate on this loan?

Accepted Answer

The answer of Palm Beach Yachts has a line of...

Question 18

Consider the following financial statement information:  Assume all sales and purchases are on credit.How long is the cash cycle? (Use average balance sheet account balances.)

Accepted Answer

The cash cycle is calculated using the formula:

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Days Inventory Outstanding: (Inventory / Cost of Goods Sold) x 365

Days Sales Outstanding: (Accounts Receivable / Annual Credit Sales) x 365

Days Payable Outstanding: (Accounts Payable / Cost of Goods Sold) x 365

Using the average balance sheet account balances given in the problem:

Days Inventory Outstanding = (1833 / 6201) x 365 = 107.68 days

Days Sales Outstanding = (1506 / 8394) x 365 = 65.24 days

Days Payable Outstanding = (1065 / 6201) x 365 = 62.83 days

Cash Conversion Cycle = 107.68 + 65.24 - 62.83 = 110.09 days

Therefore, the answer is B) 116.09 days.

Question 19

The Grain and Feed Store purchases are equal to 68 percent of the following quarter's sales.The accounts receivable period is 15 days and the accounts payable period is 30 days.Assume there are 30 days in each month.The store has estimated quarterly sales for the next year,starting with Quarter 1,of $16,750,$18,220,$17,560,and $19,710,respectively.How much will the store owe its suppliers at the end of Quarter 3?

Accepted Answer

The answer of The Grain and Feed Store purchases are...

Question 20

Ds Hardware's monthly purchases are equal to 72 percent of the following month's sales.The accounts payable period for purchases is 45 days.All other expenses are paid when incurred.Assume each month has 30 days.The company has compiled the following information: $$\begin{array} { | l | r | r | r | r | } 
\hline & \underline { \text { July } } & \underline { \text { August } } & \underline { \text { September } } & \text { October } \
\hline \text { Sales } & \$ 18,500 & \$ 19,200 & \$ 20,400 & \$ 17,800 \
\hline \text { Other expenses } & 1,900 & 2,100 & 1,900 & 1,800 \
\hline \text { Interest and taxes } & 1,000 & 1,100 & 1,200 & 1,000 \
\hline
\end{array}$$ What is the projected amount of disbursements for the month of September?

Accepted Answer

The answer of Ds Hardware's monthly purchases are equal to...

Quiz 16: Short-Term Financial Planning