Assignment 4: Receivables Management Case Study

Kathleen Rogan of Down East Pharmaceuticals has engaged you as a consultant. Download and read the scenario. Download and use the spreadsheet for analysis.

Based on the information, do the following:

• Develop the following first year data:

• The company's projected average collection period (ACP), also called days sales outstanding (DSO).

• The company's projected average daily sales. (Use a 360-day year.)

• The company's projected average receivables level.

• The end-of-year balance sheet figures for accounts receivable and notes payable assuming that notes payable are used to finance the investment in receivables.

• The projected annual dollar cost of carrying the receivables.

• The receivables level at the end of March and the end of June. Note that the receivables level forecasts, and all forecasts required by the following questions, should be based on these assumptions: (a) the monthly sales forecasts given in Table 1 are realized and (b) the company's customers pay exactly as predicted.

• The company's forecasted average daily sales for the first three months of operations and for the entire half year.

• The implied ACP at the end of March and at the end of June.

• Aging schedules at the end of March and the end of June.

• Construct uncollected balances schedules at the end of March and at the end of June.

• Use the uncollected balances schedule to forecast receivables levels at the ends of March and June for the second year of operations.

This data is to be presented to venture capitalists who will ask questions concerning both the interpretation of the receivables data and the sensitivity of the results to the basic assumptions. Write an interpretation of the results of your analysis.

Present your analysis as a 2-page report in a Word document formatted in APA style.

Name your document LastnameFirstInitial_W1_A4.doc. For example, if your name is John Smith, your document will be named SmithJ_W1_A4.doc.

Receivables Management Case Study

Down East Pharmaceuticals

Kathleen Rogan received her Ph.D. in Pharmacology ten years ago from the University of Maine. While there, she became interested in the business side of drug distribution and stayed on for an extra year to earn a Master in Business Administration (MBA) degree. After graduation, she went to work for Criser Corporation, a major drug manufacturer, where she managed the development of a new nonprescription anti-allergy drug. Although the drug passed all Food and Drug Administration (FDA) trials and was certified for general use, Criser simultaneously developed another drug that was cheaper to produce and equally effective in treating most, but not all, allergy symptoms. Consequently, Criser decided not to produce the drug Kathleen helped develop; however, it was willing to license production and distribution rights for the same drug to another company. Kathleen viewed this as a golden opportunity, so she quit her job with Criser to found her own company, Down East Pharmaceuticals. The sole purpose of the new company was to obtain licensing, production, and distribution rights for the new drug, which Kathleen dubbed