CH30 - CHAPTER 30 Short-term Financial Planning Answers to...

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CHAPTER 30 Short-term Financial Planning Answers to Practice Questions 1. Unless otherwise stated in the problem, assume all expenses are for cash. February March April Sources of cash Collections on cash sales $100 $110 $90 Collections on A/R 90 100 110 Total sources of cash 190 210 200 Uses of cash Payments on A/P 30 40 30 Cash purchases of materials 70 80 60 Other expenses 30 30 30 Capital expenditures 100 0 0 Taxes, interest, dividends 10 10 10 Total uses of cash 240 160 130 Net cash inflow -50 50 70 Cash at start of period 100 50 100 + Net cash inflow -50 50 70 = Cash at end of period 50 100 170 + Minimum operating cash balance 100 100 100 = Cumulative short-term financing required $50 $0 $0 2. 30-Day Delay : This quarter it will pay 1/3 of last quarter’s purchases and 2/3 of this quarter’s. 60-Day Delay: This quarter it will pay 2/3 of last quarter’s purchases and 1/3 of this quarter’s. 34
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3. a. Rise in interest rates: Interest payments on bank loan and interest on marketable securities b. Interest on late payments: Stretching payables; net new borrowing. c. Underpayment of taxes: Cash required for operations. (Bear in mind, however, that if any of these events were unforeseen, they would not appear in the financial plan, which is constructed well in advance of the beginning of the first quarter.) 4. Sources and Uses of Cash: Sources Sold marketable securities 2 Increased bank loans 1 Increased accounts payable 5 Cash from operations: Net income 6 Depreciation 2 Total sources 16 Uses Increased inventories 6 Increased accounts receivable 3 Invested in fixed assets 6 Dividend 1 Total uses 16 Increase in cash balance 0 Sources and Uses of Funds: Sources Cash from operations Net income 6 Depreciation 2 Total sources 8 Uses Invested in fixed assets 6 Dividend 1 Total uses 7 Increase in net working capital 1 35
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5. The new plan is shown below: First Quarter Second Quarter Third Quarter Fourth Quarter New borrowing: 1. Bank loan 41.50 8.50 0.00 0.00 2. Stretching payables 0.00 7.64 0.00 0.00 3. Total 41.50 16.14 0.00 0.00 Repayments: 4. Bank loan 0.00 0.00 16.59 33.41 5. Stretching payables 0.00 0.00 7.64 0.00 6. Total 0.00 0.00 24.23 33.41 7. Net new borrowing 41.50 16.14 -24.23 -33.41 8. Plus securities sold 5.00 0.00 0.00 0.00 9. Less securities bought 0.00 0.00 0.00 0.65 10. Total cash raised 46.50 16.14 -24.23 -34.06 Interest payments: 11. Bank loan 0.00 1.04 1.25 0.84 12. Stretching payables 0.00 0.00 0.43 0.00 13. Interest on securities sold 0.00 0.10 0.10 0.10 14. Net interest paid 0.00 1.14 1.78 0.94 15. Cash required for operations 46.50 15.00 -26.00 -35.00 16. Total cash required 46.50 16.14 -24.23 -34.06 36
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6. First
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This note was uploaded on 10/19/2009 for the course FINANCE finance mb taught by Professor Myers during the Spring '09 term at NUCES - Lahore.

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CH30 - CHAPTER 30 Short-term Financial Planning Answers to...

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