Corporate_Finance_9th_edition_Solutions_Manual_FINAL0

Cleveland compressor is more likely to incur shortage

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Unformatted text preview: days/6.7124 Inventory period = 54.38 days And the receivables turnover and receivables period are: Receivables turnover = Credit sales/Average receivables Receivables turnover = $143,625/{[$12,169 + 12,682]/2} Receivables turnover = 11.56 times Receivables period = 365 days/Receivables turnover Receivables period = 365 days/11.5589 Receivables period = 31.5774 days So, the operating cycle is: Operating cycle = 54.38 days + 31.58 days Operating cycle = 85.95 days 503 The cash cycle is the operating cycle minus the payables period. The payables turnover and payables period are: Payables turnover = COGS/Average payables Payables turnover = $105,817/{[$13,408 + 14,108]/2} Payables turnover = 7.6913 times Payables period = 365 days/Payables turnover Payables period = 365 days/7.6913 Payables period = 47.46 days So, the cash cycle is: Cash cycle = 85.95 days – 47.46 days Cash cycle = 38.50 days The firm is receiving cash on average 38.50 days after it pays its bills. 7. a. The payables period is zero since the company pays immediately. Sales in the year following this one are projected to be 15% greater in each quarter. Therefore, Q1 sales for the next year will be $830 (1.15) = $954.50. The payment in each period is 30 percent of next period’s sales, so: Q1 Payment of accounts b. $223.50 Q2 $271.50 Q3 $294.00 Q4 $286.35 Since the payables period is 90 days, the payment in each period is 30 percent of the current period sales, so: Q1 Payment of accounts $249.00 Q2 $223.50 Q3 $271.50 Q4 $294.00 c. Since the payables period is 60 days, the payment in each period is 2/3 of last quarter’s orders, plus 1/3 of this quarter’s orders, or: Quarterly payments = 2/3(.30) times current sales + 1/3(.30) next period sales. Q1 Payment of accounts $240.50 Q2 $239.50 Q3 $279.00 Q4 $291.45 504 8. Since the payables period is 60 days, the payables in each period will be: Payables each period = 2/3 of last quarter’s orders + 1/3 of this quarter’s orders Payables each period = 2/3(.75) times current sales + 1/3(.75) next period sales Q1 $677.50 166.00 73.00 $916.50 Q2 $767.50 210.00 73.00 $1,050.5 0 Q3 $700.00 194.00 73.00 $967.00 Q4 $672.50 172.00 73.00 $917.50 Payment of accounts Wages, taxes, other expenses Long-term financing expenses Total 9. a. The November sales must have been the total uncollected sales minus the uncollected sales from December, divided by the collection rate two months after the sale, so: November sales = ($79,800 – 57,200)/0.15 November sales = $150,666.67 b. The December sales are the uncollected sales from December divided by the collection rate of the previous months’ sales, so: December sales = $57,200/0.35 December sales = $163,428.57 c. The collections each month for this company are: Collections = .15(Sales from 2 months ago) + .20(Last months sales) + .65 (Current sales) January collections = .15($150,666.67) + .20($163,428.57) + .65($173,000) January collections = $167,735.71 February collections = .15($163,428.57) + .20($173,000) + .65($184,000) February collections = $178,714.29 March collections = .15($173,000) + .20($184,000) + .65($205,000) March collections = $196,000.00 505 10. The sales collections each month will be: Sales collections = .35(current month sales) + .60(previous month sales) Given this collection, the cash budget will be: Beginning cash balance Cash receipts Cash collections from credit sales Total cash available Cash disbursements Purchases Wages, taxes, and expenses Interest Equipment purchases Total cash disbursements Ending cash balance 11. Item Cash Accounts receivable Inventories Property, plant, and equipment Accounts payable Accrued expenses Long-term debt Common stock Accumulated retained earnings Intermediate 12. First, we need to calculate the sales from the last quarter of the previous year. Since 50 percent of the sales were collected in that quarter, the sales figure must have been: Sales last quarter of pervious year = $72,000,000 / (1 – .50) Sales last quarter of pervious year = $144,000,000 Now we can estimate the sales growth each quarter, and calculate the net sales including the seasonal adjustments. The sales figures for each quarter will be: Quarter 1 $150,000,000 0 150,000,000 Quarter 2 $180,000,000 –16,000,000 164,000,000 Quarter 4 $216,000,000 –8,000,000 208,000,000 Quarter 4 $259,200,000 21,000,000 280,200,000 April $448,000 414,400 862,400 249,600 63,600 18,240 132,800 464,240 $398,160 Source/Us e Source Use Use Use Source Use Source Source Source May $398,160 586,560 984,720 235,200 77,136 18,240 145,600 476,176 $508,544 Amount $2,150 –$4,780 –$5,560 –$17,765 $2,080 –$745 $10,000 $5,000 $3,170 June $508,544 625,440 1,133,984 280,800 80,480 18,240 0 379,520 $754,464 Sales (basic trend) Seasonal adjustment Sales projection 506 Since 50 percent of sales are collected in the quarter the sales are made, and 45 percent of sales are collected in the quarter after the sales are made, the cash budget is: Quarter 1 Collected within quarter Collection from pre...
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