Академический Документы
Профессиональный Документы
Культура Документы
Cash 585.00
Other current assets 3,555.00
Fixed assets 15,190.00
Total Assets 19,330.00
Problem 2
a. I
b. I
c. D
d. N
e. D
f. N
Problem 3
Operating Cycle
a. I
b. N
c. D
d. N
e. N
f. I
Problem 4
ACP = 360/ARTO
ARTO = Sales / Ave. A/R
ARTO 4.07
ACP 88.35
Operating Cycle 130.67
CCC = OC - APP
APP = 360/APTO
APTO = Purchases / Ave. A/P
APTO 6.02
APP 59.78
Problem 5
a.
Working Capital (CA) 400,000.00
Net Working Capital (CA - CL) 200,000.00
Current Ratio (CA / CL) 2.00
b.
Return on Equity (NI / SHE) 12.54%
EBIT 160,000.00
Interest - 65,000.00
EBT 95,000.00
Taxes (34%) - 32,300.00
Net Income 62,700.00
c.
Current Strategy (CA@50% of sales)
Net working capital 280,000.00
Current ratio 2.27
d.
By maintaining the amount of current assets at a higher level relative to sales, the entity will have higher liquidity. Howeve
Current liabilities are in turn 20% of the total assets (both current and non-current), and as more current assets are requi
Long-term debt and equity on the other hand comprises 80% of the total assets, and as more assets are financed with long
e.
Current Strategy (CA@50% of sales)
Return on Equity 13.02%
EBIT 180,000.00
Interest - 71,500.00
EBT 108,500.00
Taxes (34%) - 36,890.00
Net Income 71,610.00
f.
There is an inverse relationship between liquidity and profitability.
For assets, current assets present higher liquidity, but has lower profitability potential compared to fixed assets.
For liabilities, current liabilities present lower liquidity, but has lower cost of capital compared to long-term debt and equ
g.
Restricted
Return on equity 17.23%
Net working capital 200,000.00
Current ratio 3.00
EBIT 180,000.00
Interest - 62,500.00
EBT 117,500.00
Taxes (34%) - 39,950.00
Net Income 77,550.00
Again, above information shows an inverse relationship between liquidity and profitability.
Cash Conversion Cycle
I
I
D
D
D
I
Alt. Strategy 1 (CA@30% of sales) Alt. Strategy 2 (CA@70% of sales)
120,000.00 440,000.00
1.67 2.69
300,000.00 700,000.00
180,000.00 260,000.00
300,000.00 700,000.00
600,000.00 600,000.00
900,000.00 1,300,000.00
450,000.00 650,000.00
450,000.00 650,000.00
900,000.00 1,300,000.00
ative to sales, the entity will have higher liquidity. However, this will incur opportunity costs on the working capital requirements.
nt and non-current), and as more current assets are required, more current liabilities will also be used to maintain this level.
the total assets, and as more assets are financed with long-term financing, this shows a trade-off that favors low risk at the price of lower profitab
180,000.00 260,000.00
270,000.00 390,000.00
450,000.00 650,000.00
900,000.00 1,300,000.00
180,000.00 180,000.00
- 58,500.00 - 84,500.00
121,500.00 95,500.00
- 41,310.00 - 32,470.00
80,190.00 63,030.00
Compromise Flexible
18.70% 19.80%
- - 150,000.00
1.00 0.67
180,000.00 180,000.00
- 52,500.00 - 45,000.00
127,500.00 135,000.00
- 43,350.00 - 45,900.00
84,150.00 89,100.00
450,000.00 450,000.00
300,000.00 300,000.00
300,000.00 450,000.00
150,000.00 -
Problem 2
ARTO 14.60
Annual Sales 600,000.00
Daily Sales 1,643.84
Ave A/R Balance 41,095.89
Ave. inv. In A/R 32,876.71
Problem 3
Risk Class A
Present Proposed
Sales 750,000.00 800,000.00
VC 637,500.00 680,000.00
CM 112,500.00 120,000.00
Additional collection cost
Additional bad debts
Ave. A/R balance 187,500.00 200,000.00
Ave. A/R investment 159,375.00 170,000.00 10,625.00
Net advantage (disadvantage)
Risk Class B
Present Proposed
Sales 800,000.00 840,000.00
VC 680,000.00 714,000.00
CM 120,000.00 126,000.00
Additional collection cost
Additional bad debts
Ave. A/R balance 200,000.00 210,000.00
Ave. A/R investment 170,000.00 178,500.00 8,500.00
Net advantage (disadvantage)
Risk Class C
Present Proposed
Sales 840,000.00 860,000.00
VC 714,000.00 731,000.00
CM 126,000.00 129,000.00
Additional collection cost
Additional bad debts
Ave. A/R balance 210,000.00 215,000.00
Ave. A/R investment 178,500.00 182,750.00 4,250.00
Net advantage (disadvantage)
Problem 4
Present Proposed
Sales 400,000.00 400,000.00
VC 300,000.00 300,000.00
CM 100,000.00 100,000.00
Reduction in collection costs
Reduction in bad debts 12,000.00 10,000.00
Average collection period 42.00 38.00
Average A/R balance 46,666.67 42,222.22
Average A/R investment 35,000.00 31,666.67
Earnings on freed up WC
Discounts given 1,800.00 4,800.00
Net effect in profit
Problem 5
a.
Annual requirement 12,000.00
OC/ order 50.00
CC/u 0.10
EOQ 3,464.10
b.
Average inventory 1,732.05
c.
OC 173.21
CC 173.21
Total inventory cost 346.41
d.
Daily Usage 400.00
EOQ 3,464.10
Optimal inventory cycle (days) 8.66
e.
No. of orders 3.46 *3 or 4 orders
Problem 6
a.
Annual requirement 36,000.00
OC/ order 100.00
CC/u 5.00
EOQ 1,200.00
b.
Average inventory 3,600.00 (EOQ/2 + SS)
c.
No. of orders 30.00
d.
Total inventory cost
Ordering cost 3,000.00
Carrying cost 18,000.00
Total 21,000.00
e.
Reorder point
Lead time * daily usage 493.15
Safety stock 3,000.00
Total 3,493.15
Problem 7
Present Proposed
Sales 220,000.00 240,000.00
VC (same, irrelevant) - -
Bad debts - 9,600.00
Average A/R investment - 240,000.00
Problem 8
Present Proposed
Sales 20,400,000.00 21,480,000.00
VC (same, irrelevant) - -
Bad debts - 644,400.00
Average A/R investment - 21,480,000.00
Problem 9
a.
Payment within discount period 90.00
Payment beyond discount period 91.84
Percentage of discount 2.00%
b.
If all customers do not avail of the discount
Average A/R balance 303,072.00
d.
Insufficient information: what portion of customers avail and forego the cash discount?
Problem 10
Present Proposed
Sales - 17,100.00 17,100.00
Variable costs - - 11,400.00 - 11,400.00
Additional A/R balance - 17,100.00
Additional A/R investment - 11,400.00
Opportunity cost on WC requirement - 228.00
Provision for bad-debts (20%) - 3,420.00
2,052.00
Present Proposed
Sales - 17,100.00 17,100.00
Variable costs - - 11,400.00 - 11,400.00
Additional A/R balance - 17,100.00
Additional A/R investment - 11,400.00
Opportunity cost on WC requirement - 228.00
Provision for bad-debts (squeeze for break-even) - 5,472.00
Net impact on profit -
Problem 11
a.
Refuse Credit Grant Credit
SP/unit 71.00 75.00
Cost/unit 32.00 33.00
Quantity sold 6,200.00 6,900.00
Sales 440,200.00 517,500.00 77,300.00
Variable costs - 198,400.00 - 227,700.00 - 29,300.00
Provision for bad-debts - - 51,750.00 - 51,750.00
Opportunity cost on WC requirement - - 11,643.75 - 11,643.75
Net impact on profit - 15,393.75
b.
Refuse Credit Grant Credit
SP/unit 71.00 77.54
Cost/unit 32.00 33.00
Quantity sold 6,200.00 6,900.00
Sales 440,200.00 535,042.74 94,842.74
Variable costs - 198,400.00 - 227,700.00 - 29,300.00
Provision for bad-debts - - 53,504.27 - 53,504.27
Opportunity cost on WC requirement - - 12,038.46 - 12,038.46
Net impact on profit 0.00
c.
Refuse Credit Grant Credit
SP/unit 71.00 75.00
Cost/unit 32.00 34.50
Quantity sold 6,200.00 6,210.00
Sales 440,200.00 465,750.00 25,550.00
Variable costs - 198,400.00 - 214,245.00 - 15,845.00
Provision for bad-debts - - -
Opportunity cost on WC requirement - - 10,479.38 - 10,479.38
Net impact on profit - 774.38
7,500.00
-
- 2,500.00
- 2,125.00
2,875.00 Accept
6,000.00
-
- 3,200.00
- 2,040.00
760.00 Accept
3,000.00
-
- 2,400.00
- 1,275.00
- 675.00 Decline
-
-
2,000.00
600.00
- 3,000.00
- 400.00
OC CC
3 orders 150.00 200.00 350.00
4 orders 200.00 150.00 350.00
20,000.00
-
- 9,600.00
- 4,800.00
5,600.00
10,000.00
-
- 4,800.00
- 2,400.00
2,800.00
1,080,000.00
-
- 644,400.00
- 537,000.00
- 101,400.00
Accept
32.00%
*note also that there will no longer be a provision for bad debts as credit reports are perfectly reliable