CHAPTER 3. CASH FLOW AND FINANCIAL PLANNING (30 MARKS) White Ltd generated sales revenues of $325 000 and $375 000 in March and April and projected sales of $375 000 $400 000 $450 000 and $500 000 for May to August respectively. 1) Twenty per cent of the firms sales is for cash 40% collected 1 month later and the remaining 40% is collected two months later. 2) The firm expects to receive a monthly income of $12 500 attributable to interest and dividends. 3) The firms purchases during March and April were $200 000 each month and are expected to be $225 000 $250 000 $275 000 and $325 000 during May to August respectively. 4) Ten percent of the firms purchases are for cash 40% is paid one month later and the remaining 50% is paid after a two-month lag. 5) Wages and salaries can be found for each month by adding 10% of the previous months sales to a fixed $50 000 charge. 6) Monthly office and warehouse rents of $40 000 must be paid. 7) Cash dividends of $20 000 will be paid in May and August. 8) Taxes of $37 500 will be paid in May and August. 9) A loan payment of $75 000 which includes principal and interest must be made in July. 10) A cash payment of $125 000 will be completed for a new machine in June. 11) The firms cash balance at the end of April was $87 500. 12) The policy requires a minimum cash balance of $50 000. Requirements: a) Prepare a cash budget for May June July and August. b) Comment on the firms cash status forecast for May June July and August. CHAPTER 14. WORKING CAPITAL AND CURRENT ASSETS MANAGEMENT (40 MARKS) PROBLEM 14.1 ABC Manufacturing has an average inventory age of 80 days an average collection period of 70 days and an average payment period of 60 days. a) Calculate the firms cash conversion cycle b) Calculate the firms cash turnover or frequency of its cash conversion cycle in a year (assuming a 365-day year) c) Should the firm try to minimise or maximise the cash conversion cycle and cash turnover? Why? PROBLEM 14.2 Leopard Corporation purchases 600 000 units per year of one component. The fixed cost per order is $12.5. The annual carrying cost of the item is 27% of its $1 cost. Determine the EOQ if: a) No changes b) Order cost of zero c) Carrying cost of zero What do your answers illustrate about the EOQ model? Explain. CHAPTER 15. CURRENT LIABILITIES MANAGEMENT (30 MARKS) PROBLEM 15.1 Albert Ltd has purchases of $1 000 000 on credit. The supplier has offered Albert terms of 1.75/5 net 30. The current interest rate on a bank overdraft is 12%. What is the cost of giving up the cash discount? Should the company take it up? PROBLEM 15.2 Data#3 has obtained a $10 000 90-day bank loan at an annual interest rate of 8% payable at maturity. a) How much interest in dollars will the firm pay on the 90 day loan? b) Find the effective cost of the loan in percentage for the 90 days . c) Annualise your finding in b) to find the effective annual rate of interest for this loan.

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