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Homework 8

The document provides financial information for ABCD Corporation including beginning and ending inventory, accounts receivable, and accounts payable amounts. It asks to calculate the cash conversion cycle and interpret the answer. It also provides budget information for ABCD Inc. for the second quarter of 2013 including credit sales, credit purchases, cash disbursements for wages/taxes/expenses and interest. It asks to complete a cash budget using the information provided. Finally, it provides additional details on ABCD Corporation's current credit terms and sales and asks if they should change their terms and why.

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56 views2 pages

Homework 8

The document provides financial information for ABCD Corporation including beginning and ending inventory, accounts receivable, and accounts payable amounts. It asks to calculate the cash conversion cycle and interpret the answer. It also provides budget information for ABCD Inc. for the second quarter of 2013 including credit sales, credit purchases, cash disbursements for wages/taxes/expenses and interest. It asks to complete a cash budget using the information provided. Finally, it provides additional details on ABCD Corporation's current credit terms and sales and asks if they should change their terms and why.

Uploaded by

Keti
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

Consider the following financial statement information for the ABCD Corporation:
Item Beginning Ending
Item Beginning Ending
Inventory $17,385 $19,108
Accounts 13,182 13,973
receivable
Accounts payable 15,385 16,676

Net sales $178,312


Cost of goods sold 140,382

Calculate the cash conversion cycle. How do you interpret your answer?

2. Here are some important figures from the budget of ABCD Inc., for the second quarter of
2013:
April May June
Credit sales $547,200 $570,240 $630,720
Credit purchases 211,680 252,720 288,450
Cash disbursements
Wages, taxes, and 57,240 69,422 72,432
expenses
Interest 16,416 16,416 16,416
Equipment purchases 119,520 131,040 0
The company predicts that 5 percent of its credit sales will never be collected, 35 percent of
its sales will be collected in the month of the sale, and the remaining 60 percent will be
collected in the following month. Credit purchases will be paid in the month following the
purchase.
In March 2013, credit sales were $302,400, and credit purchases were $224,640.
Using this information, complete the following cash budget:

April May June


Beginning cash balance $403,200
Cash receipts
Cash collections from
credit sales
Total cash available
Cash disbursements
Purchases
Wages, taxes, and
expenses
Interest
Equipment purchases
Total cash disbursements
Ending cash balance

3. The ABCD Corporation has a 12 percent opportunity cost of funds and currently sells on
terms of “net/10, EOM.” (This means that goods shipped before the end of the month must
be paid for by the tenth of the following month.) The firm has sales of $10 million a year,
which are 80 percent on credit and spread evenly over the year. The average collection
period is currently 60 days. If ABCD offered terms of “2/10, net 30,” customers representing
60 percent of its credit sales would take the discount, and the average collection period
would be reduced to 40 days. Should ABCD change its terms from “net/10, EOM” to “2/10,
net 30”? Why?

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