Changes in the Cash Account. Indicate the impact of the following corporate actions on cash, using the letter I for an increase, D for a decrease, or N when no change occurs.
a. A dividend is paid with funds received from a sale of debt.
b. Real estate is purchased and paid for with short-term debt.
c. Inventory is bought on credit.
d. A short-term bank loan is repaid.
e. Next year’s taxes are prepaid.
f. Preferred stock is repurchased.
g.Sales are made on credit.
h. Interest on long-term debt is paid.
i.Payments for previous sales are collected.
j. The accounts payable balance is reduced.
f. A dividend is paid.
l. Production supplies are purchased and paid for with a short-term note.
m. Utility bills
o. Marketable securities are purchased.
(3) Changes in the Operating Cycle. Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change.
a. Average receivables go up.
B.Credit payment times for customers are increased.
C. Inventory turnover goes from 3 times to 7 times.
D. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f.Payments to suppliers are accelerated.
Calculating Cash Collections. The Maynard Company has projected the following quarterly sales amounts for the coming year:
QI Q2 Q3 Q4
SALES $ 480 $520 $610 $760
a. Accounts receivable at the beginning of the year are $240. Maynard has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:
Q1 Q2 Q3 Q4
A. beginning receivables
Calculating Payments. Confusion Products has projected the following sales for the coming year:
Q1 Q2 Q3 Q4
Sales $620 $690 $860 $780
Sales in the year following this one are projected to be 15 percent greater in each quarter.
a. Calculate payments to suppliers assuming that the company places orders during each quarter equal to 30 percent of projected sales for the next quarter. Assume that the company pays immediately. What is the payables period in this case?
Q1 Q2 Q3 Q4
Short-Term Investments. Why is a preferred stock with a dividend tied to short-term interest rates an attractive short-term investment for corporations with excess cash?
(2) LO 1 2.
Calculating Float. You have $13,200 on deposit with no outstanding checks or uncleared deposits. If you deposit a check for $4,800, does this create a disbursement float or a collection float? What is your available balance? Book balance?
Cash Discounts. You place an order for 900 units of Good X at a unit price of $46. The supplier offers terms of 1/20, net 35.
a. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit?
b.What is the discount being offered? How quickly must you pay to get the discount? If you do take the discount, how much should you remit?
C. If you don’t take the discount, how much interest are you paying implicitly? How many days’ credit are you receiving?
(11) Terms of Sale. A firm offers terms of 2/15, net 40. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if
EOQ. The Trektronics store begins each month with 950 phasers in stock. This stock is depleted each month and reordered. If the carrying cost per phaser is $32 per year and the fixed order cost is $540, what is the total carrying cost? What is the restocking cost? Should the company increase or decrease its order size? Describe an optimal inventory policy for the company in terms of order size and order frequency.