1. Indicate the effect of the following on the cash cycle: Accounts payable period goes up
Decrease | ||
Increase | ||
No change |
2. Indicate the effect of the following on the cash cycle: Accounts payable turnover goes up
Increase | ||
Decrease | ||
No change |
3. On July 15th, you purchased $10,000 worth of goods. The terms of the sale were 1/8, net 49. What is the effective annual rate of interest for the credit period for this sale?
4. ABC Company has annual sales of $400,000 and cost of goods sold of $79,161. The accounts payable period is 34.53 days. What is the average accounts payable balance?
5. Which one of the following is most indicative of a flexible short-term financial policy?
Relatively low level of liquidity | ||
Relatively high ratio of short-term debt to total debt | ||
Relatively high ratio of current assets to total assets | ||
Relatively low level of accounts receivable | ||
Relatively low level of inventory |
6. ABC Company has an average collection period of 29 days and factors all of its receivables immediately at a 2.4 percent discount. Assume all accounts are collected in full. What is the firm’s effective cost of borrowing?
7. Compute the Accounts Payable (A/P) period based on the following information:
8. Compute the cash cycle based on the following information:
Average Collection Period = 65
Accounts Payable Period = 25
Average Age of Inventory = 78
9. ABC Company sells 2,052 chairs a year at an average price per chair of $128. The carrying cost per unit is $27.87. The company orders 242 chairs at a time and has a fixed order cost of $42.3 per order. The chairs are sold out before they are restocked. What are the total carrying costs?
10.
Month | Sales $ | Month | Sales $ |
Jan | 43,896 | July | 47,444 |
Feb | 33,553 | Aug | 47,045 |
Mar | 47,045 | Sep | 43,896 |
Apr | 47,444 | Oct | 47,045 |
May | 43,896 | Nov | 33,553 |
June | 33,553 | Dec | 47,444 |
The company has estimated expenses as follows:
General and administrative expenses: $3,030
Material purchases are 34 percent of sales. Material purchases are paid in the month following the purchase.
Interest payment per month: $3,105
Rent expenses per quarter starting March: $6,724
Calculate the cash outflows for June.
11.ABC Corporation currently has an inventory turnover of 30.57, a payables turnover of 7.69, and a receivables turnover of 5.39. How many days are in the operating cycle?
12.As of this morning, your firm had a ledger balance of $4,402 with no outstanding deposits or checks. Today, your firm deposited 4 checks in the amount of $161 each and wrote a check in the amount of $660. What is the amount of the collection float as of the end of the day?
13.ABC Company writes 384 checks a day for an average amount of $528 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of $163,586 a day in checks that are deposited immediately. Deposited funds are available in 1 days. What is the firm’s net float?
14.Identify a source of cash from below. Choose only one.
decrease in long-term debt | ||
Increase in fixed assets | ||
Decrease in accounts receivable | ||
decrease in current liabilities | ||
increase in inventory |
15.ABC Corporation currently has an inventory turnover of 11.66, a payables turnover of 9.95, and a receivables turnover of 12.75. How many days are in the cash cycle?
16.Which of the following is a Source of Cash? Choose only one.
Increase in long-term debt | ||
decrease in current liabilities | ||
decrease in equity | ||
Increase in current assets | ||
Increase in fixed assets |
17.
Month | Sales $ | Month | Sales $ |
Jan | 19,300 | July | 16,066 |
Feb | 28,418 | Aug | 39,748 |
Mar | 39,748 | Sep | 19,300 |
Apr | 16,066 | Oct | 39,748 |
May | 19,300 | Nov | 28,418 |
June | 28,418 | Dec | 16,066 |
Sales are collected as follows:
In the month of Sales: 33%
In the next month: 28%
After 2 months: 7%
Remainder is considered as bad debt and is not collected.
Calculate the cash collection for June.
18.
Month | Sales $ | Month | Sales $ |
Jan | 16,319 | July | 46,147 |
Feb | 25,501 | Aug | 17,598 |
Mar | 17,598 | Sep | 16,319 |
Apr | 46,147 | Oct | 17,598 |
May | 16,319 | Nov | 25,501 |
June | 25,501 | Dec | 46,147 |
Sales are collected as follows:
In the month of Sales: 31%
In the next month: 28%
After 2 months: 12%
After 3 months: remainder is collected
Calculate the cash collection for December.
19.ABC Company has annual sales of $477,105 and cost of goods sold of $198,600. The average accounts receivable balance is $96,051. How many days on average does it take the firm to collect its accounts receivable? Assume 365 days.
20.The terms of the sale were 4/17, net 61. What is the effective annual rate of interest?
21.
Month | Sales $ | Month | Sales $ |
Jan | 25,207 | July | 20,404 |
Feb | 25,480 | Aug | 27,884 |
Mar | 27,884 | Sep | 25,207 |
Apr | 20,404 | Oct | 27,884 |
May | 25,207 | Nov | 25,480 |
June | 25,480 | Dec | 20,404 |
Sales are collected as follows:
In the month of Sales: 41%
In the next month: 24%
After 2 months: 13%
After 3 months: remainder is collected
Calculate the cash collection for November.
22.ABC Company sells 3,287 chairs a year at an average price per chair of $181. The carrying cost per unit is $15.09. The company orders 500 chairs at a time and has a fixed order cost of $66 per order. The chairs are sold out before they are restocked. What is the economic order quantity?
23.ABC Company has a cash cycle of 10.43 days, an operating cycle of 21.48 days, and an average collection period of 6 days. The company reported cost of goods sold of $293,104. What is the company’s average balance in Accounts Payable?
Average Payable period = 21.48-10.43 = 11.05
24.ABC Company sells 2,014 chairs a year at an average price per chair of $126. The carrying cost per unit is $39.72. The company orders 365 chairs at a time and has a fixed order cost of $82.8 per order. The chairs are sold out before they are restocked. What are the total shortage costs?
25.Identify which of the following will increase the operating cycle. Choose only one.
decrease in days’ sales in inventory | ||
decrease in average collection period | ||
decrease in accounts payable period | ||
Decrease in inventory turnover ratio | ||
decrease in accounts payable turnover ratio | ||
26.ABC Company sells 3,350 chairs a year at an average price per chair of $148. The carrying cost per unit is $35.71. The company orders 302 chairs at a time and has a fixed order cost of $129 per order. The chairs are sold out before they are restocked. How many orders will company place if it follows the economic order quantity model?
27.As of this morning, your firm had a ledger balance of $4,524 with no outstanding deposits or checks. Today, your firm deposited 3 checks in the amount of $117 each and wrote 14 checks in the amount of $962. What is the amount of the disbursement float as of the end of the day?
28.Determine whether the following is a source or use of fund:
A dividend is paid
Issue of short-term debt
Long-term debt decreased by $1,000,000
Next year’s taxes are prepaid
Wages and salaies are paid
Accounts receivable balance is reduced
Accounts payable balance is reduced
Marketable Securities are purchased
Marketable Securities are liquidated
A bank loan is repaid
29.Determine whether the following will INCREASE, DECREASE, or have NO EFFECT on the operating cycle
Accounts payable goes up
Accounts receivable goes down
Customers take longer to pay for the goods
Payments to suppliers are accelerated
Inventory takes longer to get sold
Accounts Receivables Turnover ratio increases from 5 times to 7 times
Accounts Payable Turnover ratio increases from 5 times to 7 times
InventoryTurnover ratio increases from 5 times to 7 times
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30.Determine whether the following will INCREASE, DECREASE, or have NO EFFECT on the cash cycle:
Accounts payable goes up
Accounts receivable goes down
Customers take longer to pay for the goods
Payments to suppliers are accelerated
Inventory takes longer to get sold
Accounts Receivables Turnover ratio increases from 5 times to 7 times
Accounts Payable Turnover ratio increases from 5 times to 7 times
InventoryTurnover ratio increases from 5 times to 7 times
31.ABC Corporation has the following sales collection policy: 25% of the sales are on cash and the remainder on credit. 40% of the credit sales are received in the first month after the sale. 40% of the credit sales are received in the second month after the sale. 18% of the credit sales are received in the third month of after the sale. 2% of the credit sales are bad debts and not received. Suppose the company has the following expected sales: Jan $50,000, Feb $60,000, March $70,000, April $45,000, May $66,000. Determine the cash collections for May.
b. ABC Corporation has the following sales collection policy: 25% of the sales are received in the same month, 50% of the sales are received in the first month after the sale. 20% of the sales are received in the second month after the sale. The remainder are received in the third month after the sale. Suppose the company has the following expected sales: Jan $50,000, Feb $60,000, March $70,000, April $45,000, May $66,000. Determine the cash collections for May.
32.The terms of trade are 2/15 net 60. Compute the effective rate of forgoing the cash discount.
b. A company has an average collection period of 20 days and A/R balance of $100,000. Compute the annual credit sales. Assume 365 days.
c. A company has an average collection period of 25 days and annual credit sales of $300,000. Compute the A/R balance. Assume 365 days.
33.The terms of the sale were 1/7, net 21. What is the effective annual rate of interest for the credit period for this sale?
a. ABC Company sells 3,500 units of its product each year at a price per unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40 percent of the customers. What is the average collection period? What is the amount of the company’s accounts receivable?
b. ABC Company has an average collection period of 18 days and annual sales of $694,000. What is the average investment in accounts receivables as shown on the balance sheet?
34. ABC Furniture sells 2,400 sofas a year at an average price per sofa of $1,250. The carrying cost per unit is $11.60. The company orders 80 sofas at a time and has a fixed order cost of $52 per order. The sofas are sold out before they are restocked.
a) What is the total carrying cost?
b) What is the total restocking cost?
c) What are the total costs?
d) What is the economic order quantity?
e) How many orders will company place if it follows the economic order quantity model?
f) Should the company increase or decrease its order size in order to follow the EOQ model?