Masson Corporation
Maybi Pio
Florida National University
Corporate Finance
Professor Rewal Alonso
Date:10/3/2016
Masson Corporation
a.
Q1 Q2 Q3 Q4
Beginning receivables 120 30 40 50
Sales 90 120 150 120
Cash collections 180 110 140 130
Ending receivables 30 40 50 40
Total cash collections 300 140 180 180
Total cash disbursements 80 160 180 160
Net cash inflow 220 -20 0 20
Beginning cash balance 5 225 205 205
Ending cash balance 225 205 205 225
Minimum cash balance 5 5 5 5
Cumulative surplus (deficit) 220 200 200 220
b.
There are a number of options that the company could take to avert the impending cash
flow crisis. One of the options that the company could take is to hasten the recovery of
trade receivables. Currently, the company takes an average of 60 days to collect trade
receivables from its customers. The longer customers stay with the company’s cash, the
less likely it is that the firm will recover the receivable amounts. The amount of
receivables that is unrecoverable increases as the collection period increases. If Masson
hastens its receivables collection period, not only will it have cash flows sooner but it will
also be assured of collecting a larger portion of receivables than if it maintained a longer
collection period. When cash is tied up in trade receivables, Masson has to find alternative
sources. This may involve borrowing at a cost in order to meet the cash deficit. Borrowing
has a cost attached to it. If Masson can avoid borrowing by hastening recovery of accounts
receivable then it will have saved on borrowing costs.
The second way in which Masson can avert the impending cash flow crisis is by increasing
sales. Increasing sales will increase the amount of cash available to the company and
therefore get the company out of the impending cash flow crisis. One of the ways of
increasing sales is by increasing sales volumes. This can be achieved by giving volume
discounts or by lowering commodity selling prices. The other option available in
increasing sales is by increasing selling price. Increasing selling price increases the amount
of cash available from a unit sale. This option is only viable if increasing selling price does
not result in significant reductions in sales volumes. The increase in selling price should
lead to an overall increase in sales, contribution and net profit.
As indicated by the trade spending rundown out Table 1, the organization is hoping to a
negative trade circumstance out the following 75%. A negative income toward the end of
every quarter suggests that the money payment surpass money accumulations from the
