Reference no: EM132472794
Question 1 - Cash Budget Exercise: Below are some important figures from the budget of the Sundays Limited for the next three months.
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Mar
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Apr
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May
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Credit sales
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$160,000
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$140,000
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$192,000
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Credit purchases
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68,000
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64,000
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80,000
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Cash disbursements:
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Wages, taxes, and expenses
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8,000
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7,000
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8,400
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Interest
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3,000
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3,000
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3,000
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Equipment purchases
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50,000
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4,000
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The company predicts that 10% of its sales will never be collected. 50% of its sales will be collected in the month of the sale: the rest of its sales will be collected in the following month. Purchases on trade accounts will be paid in the month following the purchase. Sundays also plans to pay $10,000 dividends to its shareholders in May. In addition, the company is scheduled to make a principal repayment of $320,000 on its short-term loan at the end of April. In February, the credit sales were $180,000.
Required - Use above information to complete the following cash budget.
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Mar
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Apr
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May
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Beginning cash balance
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$200,000
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Cash receipts
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Cash collections from credit sales
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Bank loan
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Total cash available
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Cash disbursements:
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Pay credit purchases
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65,000
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Wages, taxes, and expenses
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Equipment purchases
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Interest
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Principal repayments
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Dividends
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Total cash disbursed
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Ending cash balance
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Question 2 - Ashwell Corp has $1,600,000 of sales, $200,000 of inventories, $150,000 of receivables, and $100,000 of payables. Its cost of goods sold is 70% of sales. What is Ashwell's cash conversion cycle (CCC)?
Question 3 - Miller Technologies buys $800,000 of materials (net of discounts) on terms of 3/5, net 60, and it currently pays after 5 days and takes discounts. Miller plans to expand, and this will require additional financing. If Miller decides to forego discounts and thus to obtain additional credit from its suppliers, what would the nominal and effective cost of that credit be?
Queston 4 - Murtaugh Manufacturing sells on terms of 2/5, net 40. Total annual sales are $950,000. 40% of the customers pay on the 5th day and take discounts, and the remainder pay, on average, 50 days after their purchases. All sales and receivables are recorded net of discounts, regardless of whether or not discounts are actually taken.
a. What is the firm's average accounts receivable balance?
b. What should the nominal cost of trade credit be to those customers who do not take discounts, based on a 365 day year, assuming that they pay on time, even though they do not?
c. What is the actual nominal cost of trade credit to those customers who do not take discounts, based on a 365 day year, recognizing that they do not pay on time?
d. What is the effective cost of trade credit to those customers who do not take discounts, based on a 365 day year, recognizing that they do not pay on time?