M3

Work problems

Please complete the work problems assigned in this module and upload your completed homework assignment no later than Friday at midnight.

Work Problems

(1) XYZ Inc. last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firms inventory level and increase the firms inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up?

Answer hint: (old) Inventory = Sales / inventory turnover ratio = ? mil/ ? = ? mil (new) Inventory = Sales / inventory turnover ratio = ? mil / ? = ? mil Freed up cash = (old) mil (new) mil = ? mil

(2) Hamilton Auto Parts has current assets of $789,500 and current liabilities of $688,560. What is the amount of working capital? What is the company's current ratio?

Answer hint:

Working Capital = current assets - current liabs = ?

Current Ratio = Current Assets / Current Liabilities = ?

(3) ABC Company issued an invoice to a customer on March 17 for $560 with credit terms 3/10, n/45.

(a) If the customer wishes to take the discount, by what date must the invoice be paid?

(b) If the customer takes the discount, what amount will be paid?

(c) If the discount is not taken, by what date must the invoice be paid?

(4) Determine the cash discount if the Invoice amount is $285 with credit terms 3/15, n/30 if payment is made within 15 days.

(5) Determine the cash discount if the Invoice amount is $485 (including $15 in shipping) with credit terms 2/10, n/30 if payment is made within 10 days.

(6) Compute both the net payment and final payment dates if the invoice was issued on May 4th with credit terms 2/10, n/30.

(7) Compute both the net payment and final payment dates if the invoice was issued on April 12th with credit terms 3/10, n/30.

(8) In preparing its cash budget, XYZ Company projected cash receipts of $47,890 and cash payment of $41,674. Do these payment amounts represent a cash excess or shortage? For what amount?

(9) In preparing an aging of accounts receivable report, the credit manager determined that 0.04 percent of amounts due were more than 90 days overdue. If the company had accounts receivable of $456,773, what amount was more than 90 days overdue?

(10) Given that the normal credit terms are 30 days, analyze the following aging schedule

Month of Sales	Age of Account (days)	Amounts($)	Percenatage of Amount Due
May	0-30	60,000	60
April	31-60	25,000	25
March	61-90	5,000	5
February	91-120	10,000	10
Total		100,000	100

The next five problems refer to the same company: ABC Company

(11) ABC Company places orders for goods equal to 75% of its sales forecast in the next quarter. What will be the orders in each quarter if the sales forecast for the next five quarters are as follows:

Current Quarter 1 Sales Forecast = $372

Current Quarter 2 Sales Forecast = $360

Current Quarter 3 Sales Forecast = $336

Current Quarter 4 Sales Forecast = $384

Following Year Quarter 1 Sales Forecast = $384

Answer hint:

Quarter Order

1 0.75 $360 = $270

2 0.75 $? = $?

3 0.75 $? = $?

4 0.75 $? = $?

(12) Calculate ABC's cash payments to its suppliers under the assumption that on an average the firm pays two thirds of purchases in the quarter they are purchased and one third in the following quarter.

Answer hint:

Since the first quarters sales forecast was $372, orders placed during the fourth quarter of the preceding year would have been 0.75 $372 = $279.

Quarter Payment*

1 (1/3 $279) + (2/3 $270) = $273

2 (1/3 $?) + (2/3 $?) = $?

3 (1/3 $?) + (2/3 $?) = $?

4 (1/3 $?) + (2/3 $?) = $?

*Payment = [(1/3) previous period order] + [(2/3) current period order].

(13) Now suppose that ABC's customers pay one third of their purchases in the period they are purchased and two thirds in the following period, what is the forecast for ABC's receipts in each quarter of the coming year? Assume that the sales in the last quarter of the previous year were $336.

Answer hint:

Quarter Collections*

1 (2/3 $336) + (1/3 $372) = $348

2 (2/3 $?) + (1/3 $?) = $?

3 (2/3 $?) + (1/3 $?) = $?

4 (2/3 $?) + (1/3 $?) = $?

*Collections = [(2/3) previous period sales] + [(1/3) current period sales]

(14) Assuming that ABC's labor and administrative expenses are $65 per quarter and that interest on long-term debt is $40 per quarter, calculate the net cash inflow using the table given below:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sources of Cash
Collections on Accounts Receivables
Uses of Cash
Payments of Accounts Payable
Labor and administrative expenses
Interest on long-term debt
Total Uses of Cash
Net Cash Inflow (Sources - Uses)

Answer hint:

Sources of cash (use answers from Q#13) - all the total uses of cash = Net cash inflow

payments of accounts payable= answers from Q#12

Labor&Admin expenses, interest on LT debt are given

(15) Suppose ABC's cash balance at the start of the first quarter is $40 and its minimum acceptable balance is $30. Work out the short-term financing needs using the following table:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sources of Cash
Cash at start of period	$40
Net cash inflow from (from Q14)
Cash at end of period
Minimum operating cash balance	$30	$30	$30	$30
Cumulative financing required

Answer hint: Q#15

cash at start of period - net cash inflow (answers from Q#14) = cash at end of period

cash at the end of period = cash at the start of the period in the next column

min cash opr cash bal (is given) - cash at end of period = cumulative financing required

M3

Work problems

Please complete the work problems assigned in this module and upload your completed homework assignment no later than Friday at midnight.

Work Problems

(1) XYZ Inc. last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firms inventory level and increase the firms inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up?

Answer hint: (old) Inventory = Sales / inventory turnover ratio = ? mil/ ? = ? mil (new) Inventory = Sales / inventory turnover ratio = ? mil / ? = ? mil Freed up cash = (old) mil (new) mil = ? mil

(2) Hamilton Auto Parts has current assets of $789,500 and current liabilities of $688,560. What is the amount of working capital? What is the company's current ratio?

Answer hint:

Working Capital = current assets - current liabs = ?

Current Ratio = Current Assets / Current Liabilities = ?

(3) ABC Company issued an invoice to a customer on March 17 for $560 with credit terms 3/10, n/45.

(a) If the customer wishes to take the discount, by what date must the invoice be paid?

(b) If the customer takes the discount, what amount will be paid?

(c) If the discount is not taken, by what date must the invoice be paid?

(4) Determine the cash discount if the Invoice amount is $285 with credit terms 3/15, n/30 if payment is made within 15 days.

(5) Determine the cash discount if the Invoice amount is $485 (including $15 in shipping) with credit terms 2/10, n/30 if payment is made within 10 days.

(6) Compute both the net payment and final payment dates if the invoice was issued on May 4th with credit terms 2/10, n/30.

(7) Compute both the net payment and final payment dates if the invoice was issued on April 12th with credit terms 3/10, n/30.

(8) In preparing its cash budget, XYZ Company projected cash receipts of $47,890 and cash payment of $41,674. Do these payment amounts represent a cash excess or shortage? For what amount?

(9) In preparing an aging of accounts receivable report, the credit manager determined that 0.04 percent of amounts due were more than 90 days overdue. If the company had accounts receivable of $456,773, what amount was more than 90 days overdue?

(10) Given that the normal credit terms are 30 days, analyze the following aging schedule

Month of Sales	Age of Account (days)	Amounts($)	Percenatage of Amount Due
May	0-30	60,000	60
April	31-60	25,000	25
March	61-90	5,000	5
February	91-120	10,000	10
Total		100,000	100

The next five problems refer to the same company: ABC Company

(11) ABC Company places orders for goods equal to 75% of its sales forecast in the next quarter. What will be the orders in each quarter if the sales forecast for the next five quarters are as follows:

Current Quarter 1 Sales Forecast = $372

Current Quarter 2 Sales Forecast = $360

Current Quarter 3 Sales Forecast = $336

Current Quarter 4 Sales Forecast = $384

Following Year Quarter 1 Sales Forecast = $384

Answer hint:

Quarter Order

1 0.75 $360 = $270

2 0.75 $? = $?

3 0.75 $? = $?

4 0.75 $? = $?

(12) Calculate ABC's cash payments to its suppliers under the assumption that on an average the firm pays two thirds of purchases in the quarter they are purchased and one third in the following quarter.

Answer hint:

Since the first quarters sales forecast was $372, orders placed during the fourth quarter of the preceding year would have been 0.75 $372 = $279.

Quarter Payment*

1 (1/3 $279) + (2/3 $270) = $273

2 (1/3 $?) + (2/3 $?) = $?

3 (1/3 $?) + (2/3 $?) = $?

4 (1/3 $?) + (2/3 $?) = $?

*Payment = [(1/3) previous period order] + [(2/3) current period order].

(13) Now suppose that ABC's customers pay one third of their purchases in the period they are purchased and two thirds in the following period, what is the forecast for ABC's receipts in each quarter of the coming year? Assume that the sales in the last quarter of the previous year were $336.

Answer hint:

Quarter Collections*

1 (2/3 $336) + (1/3 $372) = $348

2 (2/3 $?) + (1/3 $?) = $?

3 (2/3 $?) + (1/3 $?) = $?

4 (2/3 $?) + (1/3 $?) = $?

*Collections = [(2/3) previous period sales] + [(1/3) current period sales]

(14) Assuming that ABC's labor and administrative expenses are $65 per quarter and that interest on long-term debt is $40 per quarter, calculate the net cash inflow using the table given below:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sources of Cash
Collections on Accounts Receivables
Uses of Cash
Payments of Accounts Payable
Labor and administrative expenses
Interest on long-term debt
Total Uses of Cash
Net Cash Inflow (Sources - Uses)

Answer hint:

Sources of cash (use answers from Q#13) - all the total uses of cash = Net cash inflow

payments of accounts payable= answers from Q#12

Labor&Admin expenses, interest on LT debt are given

(15) Suppose ABC's cash balance at the start of the first quarter is $40 and its minimum acceptable balance is $30. Work out the short-term financing needs using the following table:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sources of Cash
Cash at start of period	$40
Net cash inflow from (from Q14)
Cash at end of period
Minimum operating cash balance	$30	$30	$30	$30
Cumulative financing required

Answer hint: Q#15

cash at start of period - net cash inflow (answers from Q#14) = cash at end of period

cash at the end of period = cash at the start of the period in the next column

min cash opr cash bal (is given) - cash at end of period = cumulative financing required