17) (a) Explain why a company should project and monitor its monthly cashflows. [2 marks] (b) Your firm operates in the component supply industry and sells goods on 30- day credit terms and also acquires inventory on 30-day credit terms. Its regular monthly cashflows are as follows: Payments from customers 200,000 Payments to suppliers 70.000 Salaries and wages 50,000 Premises overheads 20,000 It also has various expected irregular payments throughout the year: 30th September, Annual corporation tax due of 300,000 31st October, Annual dividend to shareholders 50,000 30th November, anticipated purchase of new office computer equipment 110,000 The bank balance at 1st August 2020 is 200,000 The firm's overdraft limit is 20,000 and interest is charged on any outstanding balance at a rate of 2% per month, monthly in arrears. On the basis of the information above project the firm's cashflows and end of month bank balances to the end of December 2020. You should assume that all cashflows take place on the last day of the month. [5 marks] (c) (d) Comment on the situation at the end of November 2020. [1 mark] A major customer has requested an extension of its credit terms from 30 days to 60 days with effect from 31st August 2020. They purchase 50,000 of materials per month. If your firm were to accommodate that request recalculate the cashflows and end of month balances from September to December and comment on the outcome. [4 marks] (e) Suggest six actions you could take to mitigate the effect. [3 marks] [Total 15 marks] 17) (a) Explain why a company should project and monitor its monthly cashflows. [2 marks] (b) Your firm operates in the component supply industry and sells goods on 30- day credit terms and also acquires inventory on 30-day credit terms. Its regular monthly cashflows are as follows: Payments from customers 200,000 Payments to suppliers 70.000 Salaries and wages 50,000 Premises overheads 20,000 It also has various expected irregular payments throughout the year: 30th September, Annual corporation tax due of 300,000 31st October, Annual dividend to shareholders 50,000 30th November, anticipated purchase of new office computer equipment 110,000 The bank balance at 1st August 2020 is 200,000 The firm's overdraft limit is 20,000 and interest is charged on any outstanding balance at a rate of 2% per month, monthly in arrears. On the basis of the information above project the firm's cashflows and end of month bank balances to the end of December 2020. You should assume that all cashflows take place on the last day of the month. [5 marks] (c) (d) Comment on the situation at the end of November 2020. [1 mark] A major customer has requested an extension of its credit terms from 30 days to 60 days with effect from 31st August 2020. They purchase 50,000 of materials per month. If your firm were to accommodate that request recalculate the cashflows and end of month balances from September to December and comment on the outcome. [4 marks] (e) Suggest six actions you could take to mitigate the effect. [3 marks] [Total 15 marks]
