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Unformatted text preview: o not round intermediate calculations.)
Quarter
1 Payment
$ 2
3
4 Explanation:
The order is 0.80 times the following quarter's sales forecast:
Quarter Order 1 0.80 × $500 = $400 2 0.80 × $470 = $376 3 0.80 × $520 = $416 4 0.80 × $520 = $416 Since the first quarter's sales forecast was $510, orders placed during the fourth quarter of the preceding year would have been 0.80
× $510 = $408.
Quarter
1 (1/4 × $408) + (3/4 × $400) = $402 2 (1/4 × $400) + (3/4 × $376) = $382 3 (1/4 × $376) + (3/4 × $416) = $406 4 4 of 9 Payment* (1/4 × $416) + (3/4 × $416) = $416 12/3/2012 11:52 AM Fundamentals of Corporate Finance (McGraw Hill Connect Exam Solution) http://www.vuzs.net/extranotes/29fin622corporatefinance/5530fund... *Payment = [(1/4) × previous period order] + [(3/4) × current period order].
7. Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next
five quarters are as follows:
Quarter in Coming Year
First
Sales forecast $550 Second
$540 Third
$520 Following Year
Fourth
$560 First Quarter
$560 Now suppose that Paymore’s customers pay their bills with a 2month delay. What is the forecast for Paymore’s cash receipts in each
quarter of the coming year? Therefore, on average, twofourths of sales are collected in the quarter that they are sold, and twofourths
are collected in the following quarter. Assume that sales in the last quarter of the previous year were $520. (Do not round intermediate
calculations. Round your answer to the nearest dollar amount.)
Quarter
1 Collections
$ 2
3
4 Explanation:
Quarter Collections* 1 (2/4 × $520) + (2/4 × $550) = $535 2 (2/4 × $550) + (2/4 × $540) = $545 3 (2/4 × $540) + (2/4 × $520) = $530 4 (2/4 × $520) + (2/4 × $560) = $540 *Collections = [(2/4) × previous period sales] + [(2/4) × current period sales].
8. Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter. The sales forecasts for the next
five quarters are as follows:
Quarter in Coming Year
First
Sales forecast $432 Second
$420 Third
$396 Following Year
Fourth
$444 First Quarter
$444 The firm pays for its goods with a 1month delay. Therefore, on average, twothirds of purchases are paid for in the quarter that they
are purchased, and onethird are paid in the following quarter. Paymore’s customers pay their bills with a 2month delay. Therefore, on average, onethird of sales are collected in the quarter that
they are sold, and twothirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were
$396. Paymore’s labor and administrative expenses are $73 per quarter and that interest on longterm debt is $46 per quarter, work out the 5 of 9 12/3/2012 11:52 AM Fundamentals of Corporate Finance (McGraw Hill Connect Exam Solution) http://www.vuzs.net/extranotes/29fin622corporatefinance/5530fund... net cash inflow for Paymore for the coming year. (Negative amounts...
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 Fall '11
 Woo
 Finance, Corporate Finance

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