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Chapter 3: Q4DQ (page 182)
How is a cash budget used to help manage current assets?
The Cash budget provides a forecast of the cash flows and this helps in determining the build-up of each current asset and reduction of the same.
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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.)
How have new banking laws influenced competition?
Antivirus Inc. expects its sales next year to be \(2,500,000. Inventory and accounts receivable will increase \)480,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing
A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
c. If the firm likes to see its bills collected in 35 days, should it be satisfied with the average collection period?
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