Corporate_Finance_9th_edition_Solutions_Manual_FINAL0

00 1160 7560 3000 4560 q2 7560 4955 2605 3000 395

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Unformatted text preview: The accounts payable are reduced through cash payments to suppliers. 500 k. Decrease. Here the dividend payments are made with cash, which is generally the case. This is different from part a, where debt was raised to make the dividend payment. l. No change. The short-term note will not change the cash balance. m. Decrease. The utility bills must be paid in cash. n. Decrease. A cash payment will reduce cash. o. Increase. If marketable securities are sold, the company will receive cash from the sale. 2. The total liabilities and equity of the company are the net book worth, or market value of equity, plus current liabilities and long-term debt, so: Total liabilities and equity = \$10,380 + 1,450 + 7,500 Total liabilities and equity = \$19,330 This is also equal to the total assets of the company. Since total assets are the sum of all assets, and cash is an asset, the cash account must be equal to total assets minus all other assets, so: Cash = \$19,330 – 15,190 – 2,105 Cash = \$2,035 We have NWC other than cash, so the total NWC is: NWC = \$2,105 + 2,035 NWC = \$4,140 We can find total current assets by using the NWC equation. NWC is equal to: NWC = CA – CL \$4,140 = CA – \$1,450 CA = \$5,590 3. a. Increase. If receivables go up, the time to collect the receivables would increase, which increases the operating cycle. b. Increase. If credit repayment times are increased, customers will take longer to pay their bills, which will lead to an increase in the operating cycle. c. Decrease. If the inventory turnover increases, the inventory period decreases. d. No change. The accounts payable period is part of the cash cycle, not the operating cycle. 501 e. Decrease. If the receivables turnover increases, the receivables period decreases. f. No change. Payments to suppliers affects the accounts payable period, which is part of the cash cycle, not the operating cycle. 4. a. Increase; Increase. If the terms of the cash discount are made less favorable to customers, the accounts receivable period will lengthen. This will increase both the cash cycle and the operating cycle. b. Increase; No change. This will shorten the accounts payable period, which will increase the cash cycle. It will have no effect on the operating cycle since the accounts payable period is not part of the operating cycle. c. Decrease; Decrease. If more customers pay in cash, the accounts receivable period will decrease. This will decrease both the cash cycle and the operating cycle. d. Decrease; Decrease. Assume the accounts payable period and inventory period do not change. Fewer raw materials purchased will reduce the inventory period, which will decrease both the cash cycle and the operating cycle. e. Decrease; No change. If more raw materials are purchased on credit, the accounts payable period will tend to increase, which would decrease the cash cycle. We should say that this may not be the case. The accounts payable period is a decision made by the company’s management. The company could increase the accounts payable account and still make the payments in the same number of days. This would leave the accounts payable period unchanged, which would leave the cash cycle unchanged. The change in credit purchases made on credit will not affect the inventory period or the accounts payable period, so the operating cycle will not change. f. Increase; Increase. If more goods are produced for inventory, the inventory period will increase. This will increase both the cash cycle and operating cycle. 5. a. A 45-day collection period implies all receivables outstanding from the previous quarter are collected in the current quarter, and: (90 – 45)/90 = 1/2 of current sales are collected. So: Q1 \$275.00 700.00 –625.00 \$350.00 Q2 \$350.00 630.00 –665.00 \$315.00 Q3 \$315.00 810.00 –720.00 \$405.00 Q4 \$405.00 930.00 –870.00 \$465.00 Beginning receivables Sales Cash collections Ending receivables 502 b. A 60-day collection period implies all receivables outstanding from the previous quarter are collected in the current quarter, and: (90-60)/90 = 1/3 of current sales are collected. So: Q1 \$275.00 700.00 –508.33 \$466.67 Q2 \$466.67 630.00 –676.67 \$420.00 Q3 \$420.00 810.00 –690.00 \$540.00 Q4 \$540.00 930.00 –850.00 \$620.00 Beginning receivables Sales Cash collections Ending receivables c. A 30-day collection period implies all receivables outstanding from the previous quarter are collected in the current quarter, and: (90-30)/90 = 2/3 of current sales are collected. So: Q1 \$275.00 700.00 –741.67 \$233.33 Q2 \$233.33 630.00 –653.33 \$210.00 Q3 \$210.00 810.00 –750.00 \$270.00 Q4 \$270.00 930.00 –890.00 \$310.00 Beginning receivables Sales Cash collections Ending receivables 6. The operating cycle is the inventory period plus the receivables period. The inventory turnover and inventory period are: Inventory turnover = COGS/Average inventory Inventory turnover = \$105,817/{[\$15,382 + 16,147]/2} Inventory turnover = 6.7124 times Inventory period = 365 days/Inventory turnover Inventory period = 365...
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