Chapter 15 CFIN6
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:
Cash Disbursements:
Raw materials $ 91,000 $ 91,000 $ 91,000
Wages 19,500 19,500 19,500
Collection of sales in the month of sale = $130,000(0.4)(1 – 0.03) = $50,440
Collection of sales one month after the sale = $130,000(0.6)
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:
Chapter 15 CFIN6
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
15-3 Disbursement float = $15,000 x 5 days = $75,000
Collection float = $12,000 x 4 days = $48,000
Net float = $75,000 – $48,000 = $27,000
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
15-6 A lockbox system would free up three days of collection float, which equals $7,500 = $2,500 x 3 days.
This money could be invested at 18 percent, which would result on added earnings equal to $1,350 =
$7,500 x 0.18. As a result, the maximum the firm should pay for the lockbox system is $1,350 per year.
On a monthly basis, the amount is $112.50 = $1,350/12
15-7 The following table shows the computation of Buckwell’s DSO:
Proportion Average Days
Chapter 15 CFIN6
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
$200,000 DSO = 37.0 days
DSO = 37 days = 0.50(22 days) + 0.35(40 days) + 0.15(? days) = 11.0 + 14.0 + 0.15(? days)
? days = (37.0 – 11.0 – 14.0)/0.15 = 80.0 days
Check:
DSO = 0.50(22 days) + 0.35(40 days) + 0.15(80 days) = 37 days
15-9 DSO = 37 days = 0.50(20 days) + 0.30(40 days) + 0.20(? days)
15–10 Variable operating costs = 60% of sales
WACC = 12%
Existing accounts receivable = $20,000
Existing sales = $100,000
15–11 Existing accounts receivable = $12,000
Existing sales = $72,000
=
Existing
$72,000
Receivables turnover = 6.0
$12,000
Chapter 15 CFIN6
New sales = $68,000
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
Operating expenses = 0.65 x Sales ($234,000) ($230,750)
Required return, r 12% 12%
NPV $329.55 $332.73
( )
= + = + =
+
Current 62
0.12
360
$1,000.00
NPV ($650.00) ($650) $1,000(0.979549) $329.55
1
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
Operating expenses = 0.7 x Sales ($35,000) ($33,600)
Required return, r 14% 14%
Chapter 15 CFIN6
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%
NPV $184.11 $194.50
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
Amount collected on Day 45 = $1,000(0.5/2) = $250.00
= + + + =
($800.00) $490(0.997503) $250.00(0.992829) $250.00(0.988814) $184.11
Computations for proposed credit policy:
Amount collected on Day 10 = $1,100(0.6)(1 – 0.03) = $640.20
Chapter 15 CFIN6
15–15 T = 6,000
PP = $2,000
C = 45%
O = $120
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)
15–17 T = 240,000
PP = $52
C = 15%
O = $260
15–18 Order increments = 5,000
Delivery delay = 3 days
a. Number of orders = 240,000/5,000 = 48 orders
Chapter 15 CFIN6
M&M should order when 2,000 units remain = (3 days) x 666.67
15–19 T = 5,000
PP = $160
C = 20%
O = $32
15–20 If Roybow orders 1,000 mowers, the total inventory costs, excluding the cost of goods, would be:
= + = + =
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