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Chapter 3: Q5DQ (page 219)
Investors use the treasury bills as they are highly liquid and can be easily sold whenever the investor requires cash.
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Route Canal Shipping Company has the following schedule for aging of accounts receivable:
b. If the firm had $1,500,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period.
Summit Record Company is negotiating with two banks for a \(151,000 loan. Fidelity Bank requires a 28 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a 14 percent compensating balance, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent. Compensating balances will be subtracted from the \)151,000 in determining the available funds in part a.
c. Does your choice of banks change if the assumption in part b is correct?
Regis Clothiers can borrow from its bank at 17 percent to take a cash discount. The terms of the cash discount are 3/19, net 45. Should the firm borrow the funds?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
a. Fill in column (4) for each month.
Age of receivables April 30 20X1 | |||
1 | 2 | 3 | 4 |
Month of sales | Age of accounts | Amounts | Percent of amount due |
April | 0-30 | \(131,250 | ____ |
March | 31-60 | \)93,750 | ____ |
February | 61-90 | \(112,500 | ____ |
January | 91-120 | \)37,500 | ____ |
Total receivables | $375,000 | 100% |
Sharpe Knife Company expects sales next year to be \(1,550,000 if the economy is strong, \)825,000 if the economy is steady, and $550,000 if the economy is weak. Mr. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year?
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