Sustainable growth rate / %
Explanation:
g =plowback ratio × ROE = plowback ratio × profit margin × asset turnover= 0.60 × 0.24 × 0.5 = 0.072 = 7.2%
Income statement data:
Sales / $ / 6,900
Cost of goods sold / 6,100
Balance sheet data:
Inventory / $ / 680
Accounts receivable / 300
Accounts payable / 460
2.Calculate the accounts receivable period, accounts payable period, inventory period, and cash conversion cycle for the above firm:(Use 365 days in a year. Do not round intermediate calculations. Round your answers to 1 decimal place.)
a. / Accounts receivable period / 15.8days
b. / Accounts payable period / 27.5days
c. / Inventory period / 40.7days
d. / Cash conversion cycle / 29.0days
Explanation:
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.a. Accounts receivable period = / 300 / = 15.9 days
6,900/365
b. Accounts payable period = / 460 / = 27.5 days
6,100/365
c. Inventory period = / 680 / = 40.7 days
6,100/365
d. Cash conversion cycle = 15.9 + 40.7 − 27.5 = 29.0 days
3. A firm sells its $1,130,000 receivables to a factor for $1,073,500. The average collection period is 1 month. What is the effective annual rate on this arrangement?(Round your intermediate calculations to 4 decimal places. Round your answer to 2 decimal places.)
Effective annual rate / 85.84%
Explanation:
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.The discount is 5% but the firm is collecting 1 month earlier than it would otherwise. The implicit monthly interest rate (r) is defined by:
$1,073,500 × (1 +r) = $1,130,000 ==>r= 0.0526
Therefore, the effective annual rate is determined as follows:
1 +rEAR= (1 +rmonthly)12= (1.0526)12= 1.8500 ==>rEAR= 0.8500 = 85.00%
4. A firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $11,000. It will offer more liberal sales terms, but this will result in average receivables increasing to $66,000. These actions are expected to increase sales to $810,000 per year, and cost of goods will remain at 70% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase to $36,000. What effect will these changes have on the firm’s cash conversion cycle?(Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)
The cash conversion cycle willincreaseby13.65.
Explanation:
The additional sales of $810,000 increase costs of goods by $810,000 × 0.70, or $567,000.
The inventory period will change by $11,000/($567,000/365) = 7.08.
The receivables period will change by $66,000/($810,000/365) = 29.74.
The accounts payable period will change by $36,000/($567,000/365) = 23.17.
Δ Cash conversion cycle = (Δ inventory period + Δ receivables period) − Δ accounts payable period
= (7.08 + 29.74) − 23.17 = 13.65
The cash conversion cycle will increase by 13.65 as the result of these policy changes to increase sales.
5.
Dividends / 900
Additions to inventory / 140
Additions to receivables / 170
Depreciation / 110
Reduction in payables / 570
Net issuance of long-term debt / 320
Sale of fixed assets / 80
Sources
Issued long-term debt / $320
Sale of fixed assets / 80
Cash from operations:
Net income / 1,700
Total sources / $2,210
Uses
Additions to inventory / $140
Increase in accounts receivable / 170
Decrease in accounts payable / 570
Payment of dividends / 900
Total uses / $1,780
6.Products places orders for goods equal to 75% of its sales forecast in the next quarter. What will be orders in each quarter of the year if the sales forecasts for the next five quarters are as follows:
Quarter in Coming Year / Following Year
First / Second / Third / Fourth / First Quarter
Sales forecast / $432 / $420 / $396 / $444 / $444
Quarter / Order
1 / $315
2 / 297
3 / 333
4 / 333
Explanation:
Quarter / Order
1 / 0.75 × $420 = $315
2 / 0.75 × $396 = $297
3 / 0.75 × $444 = $333
4 / 0.75 × $444 = $333
6. 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 / Following YearFirst / Second / Third / Fourth / First Quarter
Sales forecast / $510 / $500 / $470 / $520 / $520
Calculate Paymore’s cash payments to its suppliers under the assumption that the firm pays for its goods with a 1-month delay. Therefore, on average, three-fourths of purchases are paid for in the quarter that they are purchased, and one-fourth are paid in the following quarter.(Do not round intermediate calculations.)
Quarter / Payment
1 / $
2 /
3 /
4 /
Explanation:
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 / Payment*
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 / (1/4 × $416) + (3/4 × $416) = $416
*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 / Following Year
First / Second / Third / Fourth / First Quarter
Sales forecast / $550 / $540 / $520 / $560 / $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 / Collections
1 / $
2 /
3 /
4 /
Explanation:
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 / Following Year
First / Second / Third / Fourth / First Quarter
Sales forecast / $432 / $420 / $396 / $444 / $444
The firmpays 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 paytheirbills 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 net cash inflow for Paymore for the coming year.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)
Quarter
First / Second / Third / Fourth
Sources of cash
Collections on accounts receivable / $ / $ / $ / $
Uses of cash
Payments of accounts payable / / / /
Labor & administrative expenses / / / /
Interest on long-term debt / / / /
Total uses of cash / $ / $ / $ / $
Net cash inflow / $ / $ / $ / $
Explanation:
Quarter / Order
1 / 0.75 × $420 = $315
2 / 0.75 × $396 = $297
3 / 0.75 × $444 = $333
4 / 0.75 × $444 = $333
Since the first quarter's sales forecast was $432, orders placed during the fourth quarter of the preceding year would have been 0.75 × $432 = $324.
Quarter / Payment*
1 / (1/3 × $324) + (2/3 × $315) = $318
2 / (1/3 × $315) + (2/3 × $297) = $303
3 / (1/3 × $297) + (2/3 × $333) = $321
4 / (1/3 × $333) + (2/3 × $333) = $333
*Payment = [(1/3) × previous period order] + [(2/3) ×current period order].
Quarter / Collections*
1 / (2/3 × $396) + (1/3 × $432) = $408
2 / (2/3 × $432) + (1/3 × $420) = $428
3 / (2/3 × $420) + (1/3 × $396) = $412
4 / (2/3 × $396) + (1/3 × $444) = $412
*Collections = [(2/3) × previous period sales] + [(1/3) ×current period sales].
9. 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 / Following Year
First / Second / Third / Fourth / First Quarter
Sales forecast / $510 / $500 / $470 / $520 / $520
The firmpays for its goods with a 1-month delay. Therefore, on average, three-fourths of purchases are paid for in the quarter that they are purchased, and one-fourth are paid in the following quarter.
Paymore’s customers paytheirbills with a 2-month delay. 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 $470.
Paymore’s labor and administrative expenses are $70 per quarter and that interest on long-term debt is $42 per quarter.
Suppose that Paymore’s cash balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $50. Work out the short-term financing requirements for the firm in the coming year. The firm pays no dividends.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)
Quarter
First / Second / Third / Fourth
Sources of cash
Cash at start of period / $ / $ / $ / $
Net cash inflow / / / /
Cash at end of period / / / / $
Minimum operating cash balance / / / /
Cumulative financing required / $ / $ / $ / $
Explanation:
Quarter / Order
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 / Payment*
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 / (1/4 × $416) + (3/4 × $416) = $416
*Payment = [(1/4) × previous period order] + [(3/4) ×current period order].
Quarter / Collections*
1 / (2/4 × $470) + (2/4 × $510) = $490
2 / (2/4 × $510) + (2/4 × $500) = $505
3 / (2/4 × $500) + (2/4 × $470) = $485
4 / (2/4 × $470) + (2/4 × $520) = $495
*Collections = [(2/4) × previous period sales] + [(2/4) ×current period sales].
Quarter
First / Second / Third / Fourth
Sources of cash
Collections on accounts receivable / $ / 490 / $ / 505 / $ / 485 / $ / 495
Uses of cash
Payments of accounts payable / 402 / 382 / 406 / 416
Labor & administrative expenses / 70 / 70 / 70 / 70
Interest on long-term debt / 42 / 42 / 42 / 42
Total uses of cash / $ / 514 / $ / 494 / $ / 518 / $ / 528
Net cash inflow / $ / −24 / $ / +11 / $ / −33 / $ / −33
Recalculate Dynamic Mattress’s financing plan assuming that the firm wishes to mainta10. in a minimum cash balance of $10 million instead of $5 million. Assume the firm can convince the bank to extend its line of credit to $50 million.(Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)
Quarter
First / Second / Third / Fourth
A. Cash requirements
Cash required for operations / $ / $ 20.00 / $ −24.00 / $ −32.00