Connect Exam Solution Homework 7-8

Of purchases are paid for in the quarter that they

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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/extra-notes/29-fin622-corporate-finance/5530-fund... *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 2-month delay. What is the forecast for Paymore’s cash receipts in each quarter of the coming year? Therefore, on average, two-fourths of sales are collected in the quarter that they are sold, and two-fourths 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 1-month delay. Therefore, on average, two-thirds of purchases are paid for in the quarter that they are purchased, and one-third are paid in the following quarter. Paymore’s customers pay their bills with a 2-month delay. Therefore, on average, one-third of sales are collected in the quarter that they are sold, and two-thirds 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 long-term 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/extra-notes/29-fin622-corporate-finance/5530-fund... net cash inflow for Paymore for the coming year. (Negative amounts...
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