Reference no: EM13621629

1. Tyler's total sales forecast for the nursery's first full year of operations is 228,000 plants at an average sales price of $5 per plant. As a first approximation, assume that 30 percent of the firm's customers will pay 10 days after the sale, 55 percent will pay on the 30th day, and 15 percent will pay on the 60th day.

a) What is the firm's projected days sales outstanding (DSO)?

b) What is the projected average daily sales? (Use a 360-day year.)

c) What is Texas Rose's projected average receivables level?

d) If Tyler is estimating a gross profit margin, or contribution margin, of 40 percent, how much of the receivables balance must actually be financed? What would Texas Rose's balance sheet figures for accounts receivable and notes payable be at the end of the year if notes payable are used to finance the investment in receivables?

e) If short-term bank loans cost 12 percent, what is the projected annual cost of carrying the receivables?

2. In general, what are the primary factors which influence the level of receivables outstanding, and thus which might change and cause a change in the firm's level of receivables? What factors influence the dollar cost of carrying the receivables?

3. Refer to the monthly sales forecasts given in the first Table. Assume that these amounts are realized and that the firm's customers pay exactly as predicted.

a) What would the receivables level be at the end of March and at the end of June?

b) What is the firm's forecasted average daily sales for the first three months of operations? For the entire half-year?

c) What is the implied DSO at the end of March? At the end of June? What is the relationship between the DSO and the average collection period?

d) Does the DSO indicate that the firm's customers have changed their payment behavior from the first to second quarter? Is DSO a good management tool in this situation? If not, why not?

4. Construct aging schedules as of the end of March and the end of June. What do these schedules indicate about the customers' payment patterns? Explain.

5. Construct the uncollected balances schedule as of the end of March and the end of June. Do these schedules properly measure customers' payment patterns? If you wanted to monitor one number from the schedule, what would be the best one? Explain your answers.

6. Assume that Texas Rose does receive financing and is now an unqualified success, and that Tyler is developing the firm's pro forma financial statements for the second year of operations using the sales forecast provided in the 2nd table. What is the best forecast of the firm's receivables at the end of March and the end of June? Explain.