Chapter 15 CFIN5
Chapter 15 Solutions
15-1 Following is the cash budget for the next three months:
Month 1 Month 2 Month 3
Sales $130,000 $130,000 $130,000
Raw materials 91,000 91,000 91,000
Cash Receipts:
Collection of sales in month of sale $ 50,440 $ 50,440 $ 50,440
Cash Disbursements:
Raw materials $ 91,000 $ 91,000 $ 91,000
Wages 19,500 19,500 19,500
Net cash flow $ 2,940 $ 2,940 $ 2,940
Beginning cash balance 0 2 ,940 5 ,880
Ending Cash Balance 2,940 5,880 8,820
15-2 Following is the cash budget for February and March:
January February March April
Sales $60,000 $70,000 $90,000 $80,000
Raw materials 38,500 49,500 44,000
Cash Receipts:
Sales in month of sale $20,580 $26,460
= (This month’s Sales) x 0.3 x (1 – 0.02)
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Chapter 15 CFIN5
Cash Disbursements:
Raw materials $49,500 $44,000
= (Next month’s sales) x 0.55
Wages 17,500 22,500
= (This month’s sales) x 0.25
Net cash flow $ (7,420) $ 5,960
15-3 Disbursement float = $15,000 x 5 days = $75,000
15-4 Disbursement float = $380,000 x 5 days = $1,900,000
15-5 A lockbox system would free up four days of collection float, which equals $500,000 = $125,000 x 4
days. This money could be invested at 12 percent, which would result on added earnings equal to
15-6 A lockbox system would free up three days of collection float, which equals $7,500 = $2,500 x 3 days.
15-7 The following table shows the computation of Buckwell’s DSO:
Proportion Average Days
Account Age Amount Outstanding (1) (2) (1) x (2)
0 – 30 days $ 65,000 65% 23 14.95
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Chapter 15 CFIN5
15-8 The following table shows QRM’s aging schedule:
Proportion Average Days
Account Age Amount Outstanding (1) (2) (1) x (2)
0 – 30 days $100,000 50% 22 11.0
Check:
15-9 DSO = 37 days = 0.50(20 days) + 0.30(40 days) + 0.20(? days)
Check:
15-10 Variable operating costs = 60% of sales
WACC = 12%
15-11 Existing accounts receivable = $12,000
Existing sales = $72,000
=
Existing
$72,000
Receivables turnover = 6.0
$12,000
DSOExisting = (360 days)/6 = 60.0 days
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Chapter 15 CFIN5
15-12 The following table summarizes the results of the NPV evaluation of the two credit policies:
Current Proposed
Annual amounts:
Sales $360,000 $355,000
15-13 The following table summarizes the results of the NPV evaluation of the two credit policies:
Proposal 1 Proposed 2
Annual amounts:
Sales $50,000 $48,000
Chapter 15 CFIN5
( )
= + = + =
+
Pr oposal 2 36
0.14
360
$133.33
NPV ($93.33) ($93.33) $133.33(0.986100) $38.15
1
NPVProposal 1 > NPVProposal 2; JJ’s Jungle Equipment should adopt Policy 1.
15-14 The following table summarizes the results of the NPV evaluation of the two credit policies:
Current Proposed
Annual amounts:
Sales $360,000 $396,000
Operating expenses = 0.8 x Sales ($288,000) ($316,800)
Required return, r 9% 9%
Daily amounts:
Operating costs (80%) ($800.00) ($880.00)
Required return 0.025% 0.025%
Collected on Day 10 $490.00 $640.20
Collected on Day 30 $250.00 $220.00
Computations for existing credit policy:
Amount collected on Day 10 = $1,000(0.5)(1 – 0.02) = $490.00
Amount collected on Day 30 = $1,000(0.5/2) = $250.00
Chapter 15 CFIN5
15-15 T = 6,000
PP = $2,000
C = 45%
O = $120
a.
2($120)(6,000)
EOQ 1,600 40 machines
0.45($2,000)
= = =
b. Total inventory cost at EOQ =
6,000 40
$120 ($2,000)(0.45) $18,000 18,000 $36,000
40 2
æ ö æ ö
+ = + =
ç ÷ ç ÷
è ø è ø
15-16 T = 100,000
PP = $15
C = 20%
O = $60
a.
= = =
2($60)(100,000)
EOQ 4,000,000 2,000 calculators
0.2($15)
b. (i) Inventory cost at EOQ =
æ ö æ ö
+ = + =
ç ÷
ç ÷ è ø
è ø
100,000 2,000
$60 ($15)(0.2) $3,000 $3,000 $6,000
2,000 2
(ii) Inventory cost at Q = 1,000 =
æ ö æ ö
+ = + =
ç ÷
ç ÷ è ø
è ø
100,000 1,000
$60 ($15)(0.2) $6,000 $1,500 $7,500
1,000 2
(iii) Inventory cost at Q = 2,500 =
æ ö æ ö
+ = + =
ç ÷
ç ÷ è ø
è ø
100,000 2,500
$60 ($15)(0.2) $2,400 $3,750 $6,150
2,500 2
15-17 T = 240,000
PP = $52
C = 15%
O = $260
a.
= = =
2($260)(240,000)
EOQ 16,000,000 4,000 units
0.15($52)
b. Number of orders = 240,000/4,000 = 60 orders
15-18 Order increments = 5,000
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Chapter 15 CFIN5
a. Number of orders = 240,000/5,000 = 48 orders
b. Daily usage = 240,000/360 = 666.67
15-19 T = 5,000
PP = $160
C = 20%
O = $32
a.
= = =
2($32)(5,000)
EOQ 10,000 100 mowers
0.20($160)
b. Total inventory cost at EOQ =
æ ö æ ö
+ = + =
ç ÷ ç ÷
è ø è ø
5,000 100
$32 ($160)(0.2) $1,600 $1,600 $3,200
100 2
15-20 If Roybow orders 1,000 mowers, the total inventory costs, excluding the cost of goods, would be:
æ ö æ ö
= + = + =
ç ÷
ç ÷ è ø
è ø
5,000 1,000
TIC $32 ($160)(0.2) $160 $16,000 $16,600
1,000 2
Cash discount when 1,000 mowers are ordered = 5,000($160)(0.02) = $16,000
If Roybow orders 1,000 mowers each time an order is made, the TIC will be $13,400 = $16,600 – $3,200
higher than if the EOQ is ordered. But Roybow will save $16,000 on the total cost of purchasing the
lawn mowers if 1,000 mowers are orders. Thus, the net savings will be $2,600 = $16,000 – $13,400.
Roybow should order in 1,000 increments.
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accessible website, in whole or in part.