1) A firm forecasts the following sales for the upcoming year. Calculate the cash receipts assuming all sales are credit sales with 55% collected one month later, 30% collected two months later, and 15% collected three months later. Ex: In April, firm is collecting 15% of Jan. sales, or $50 x .15 = $7.5. It is collecting 30% of Feb. sales, or $60 x.3 = $18. It is collecting 55% of March sales or $70 x .55 = $38.5, for a total of $64. Cash Receipts Cash Receipts Cash Receipts Month Sales Forecast (millions) Total Cash Receipts Cash Disbursements 3-Month DSO 2-Month DSO 1-Month DSO January $50 February $60 March $70 April $80 $7.5 $18.0 $38.5 $64.0 $100.0 May $110 $150.0 June $140 $175.0 July $190 $120.0 August $170 $100.0 September $80 $21.0 $57.0 $93.5 $171.5 $50.0 October $50 $28.5 $51.0 $44.0 $123.5 $25.0 November $25 $25.5 $24.0 $27.5 $77.0 $10.0 December $25 $12.0 $15.0 $13.8 $40.8 $15.0 2) Assume the same firm has its largest cash shortfalls in April, May, and June. Further assume a constant cash reserve of $75 million. Transfer the April/May/June Cash Receipts you calculated in problem 1). Calculate the monthly net cash position and monthly borrowing position. What amount of bank line of credit should the firm pre-arrange for May and June? Item April May June Cash Receipts $64 - Cash Disbursements $100.0 $150.0 $175.0 =Cash Flow -$36 $100.0 $64 + Beginning Cash = Ending Cash $64 |- Cash Reserves $75.0 $75.0 $75.0 = Net Cash Position -$11 Surplus Shortfall $11 3) The same firm is considering relaxing its credit terms. Re-calculate the impact on borrowing for the same three-month period, assuming all sales are credit sales with 25% collected one-month later, 65% collected two-months later, and 10% collected three-months later. Disbursement timing and cash reserves do not change. Ex: April cash receipts = 25% of March sales ($70 x .25), 60% of Feb. sales ($60 x .65) and 10% of January sales ($50 x .10), which is equal to $61.5 Month Sales Forecast (millions) Cash Receipts Cash Disbursements January $50 February $60 March $70 April $80 $61.5 $100.0 May $110 $150.0 June $140 $175.0 July $190 $120.0 August $170 $100.0 September $80 $180.0 $50.0 October $50 $149.5 $25.0 November $25 $81.5 $10.0 December $25 $46.8 $15.0 Item April May June Cash Receipts $61.5 Cash Disbursements $100 $150 $175 =Cash Flow + Beginning Cash $100.0 Ending Cash Cash Reserves $75.0 $75.0 $75.0 = Net Cash Position Surplus Shortfall