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Chapter 3: 11DQ (page 247)
Briefly discuss three types of lender control used in inventory financing.
The three types of lender controls are blanket inventory, trust receipt and warehousing.
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Bombs Away Video Games Corporation has forecasted the following monthly sales:
January | \(100,000 |
February | \)93,000 |
March | \(25,000 |
April | \)25,000 |
May | \(20,000 |
June | \)35,000 |
July | \(45,000 |
August | \)45,000 |
September | \(55,000 |
October | \)85,000 |
November | \(105,000 |
December | \)123,000 |
Total annual sales | \(756,000 |
Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month鈥檚 production is equal to annual sales (in units) divided by 12.
Of each month鈥檚 sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.
c. Determine a cash payments schedule for January through December. The production costs of \)2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $45,000 per month.
Under what circumstances would it be advisable to borrow money to take a cash discount?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
e. What additional information does the aging schedule bring to the company that the average collection period may not show?
Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40 percent.
c. What would happen if the short- and long-term rates were reversed?
Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has \(500,000 in fixed assets. Assume a tax rate of 40 percent.
b. Given that Guardian鈥檚 earnings before interest and taxes are \)200,000, calculate earnings after taxes for each of your alternatives.
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