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Chapter 3: 2DQ (page 157)
Explain the similarities and differences of lockbox systems and regional collection offices
The lockbox system and regional collection offices are used to clear the checks, but both use different models for the check clearing process.
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What are three theories for describing the shape of the term structure of interest rates (the yield curve)? Briefly describe each theory.
Antonio Banderos & Scarves make headwear that is very popular in the fall-winter season. Units sold are anticipated as follows:
October | 1,250 |
November | 2,250 |
December | 4,500 |
January | 3,500 |
Total units | 11,500 |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory build-up.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 11,500 items over four months at a level of 2,875 per month.
a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.
b. If the inventory costs $8 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent or the monthly rate.)
Esquire Products Inc. expects the following monthly sales:
January | \(28,000 |
February | \)19,000 |
March | \(12,000 |
April | \)14,000 |
May | \(8,000 |
June | \)6,000 |
July | \(22,000 |
August | \)26,000 |
September | \(29,000 |
October | \)34,000 |
November | \(42,000 |
December | \)24,000 |
Total annual sales | \(264,000 |
Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.
c. Determine a cash payments schedule for January through December. The production costs (\)1 per unit produced) are paid for in the month in which they occur. Other cash payments (besides those for production costs) are $7,400 per month.
Colter Steel has \(4,200,000 in assets.
Temporary current assets | \)1,000,000 |
Permanent current assets | \(2,000,000 |
Fixed assets | \)1,200,000 |
Total assets | \(4,200,000 |
Short-term rates are 8 percent. Long-term rates are 13 percent. Earnings before interest and taxes are \)996,000. The tax rate is 40 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? For a graphical example of perfectly matched plans, see Figure 6-5.
Tobin Supplies Company expects sales next year to be \(500,000. Inventory and accounts receivable will increase \)90,000 to accommodate this sales level. The company has a steady profit margin of 12 percent with a 40 percent dividend pay-out. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
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