Spring Valley

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SPRING VALLEY FOREST PRODUCTS CORPORATION Upon returning from his annual two-week vacation in early July of 2002, the treasurer of the Spring Valley Forest Products Corporation, a Mr. Fred Firr, found the firm's audited balance sheet as of June 30 on his desk. Close scrutiny of the company's financial condition as reported in this document suggested to Mr. Firr that the cash flow picture for the enterprise was deteriorating. In times gone by, the firm had been able to maintain sizeable cash balances in its bank of account, Tippecanoe Trust Company, during the major portion of the fiscal year, and had found only modest seasonal borrowings necessary. Recently, however, a lengthening of credit terms to customers necessitated by intense…show more content…
Shipment had been agreed upon for the latter part of the year. Of the total sales indicated, only 10 percent were expected to be for cash. Collections on the remainder were anticipated generally within 60 days of sale. In particular, recent experience had suggested that roughly one-half of credit sales were collected for during the month following the month of sale and that other one-half during the next subsequent month. Mr. Firr intended to use this pattern as the basis for his calculations. SPRIVORPCO'S woodlot management group had entered into commitments with various timber growers in anticipation of the sales expected. Specifically, they planned to purchase hardwood timber in bulk according to the following schedule: July August September October November December $50,000 50,000 70,000 40,000 30,000 30,000 The cash payments for these deliveries would occur, in all cases, one month later. Labor costs were forecast at the same level as purchases, and were expected to follow an identical month-by-month pattern. Because of the need to pay wages weekly, however, the cash outlays for labor
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