Gusto Enterprises had a tough month in May, but June's sales and cash activity are looking strong. Gusto had to borrow $4,000 in May in order to maintain the company's required minimum balance of $5,000. The loan carries an annual interest rate of 6%, with monthly interest payments required. Loan withdrawals, in $1,000 increments, are assumed to be taken out on the first of the month. Loan payments, also in $1,000 increments, reduce the principal on the last day of the month. The June 1 cash balance is $5,780. With budgeted cash receipts of $105,600 and cash disbursements of $103,400 in June, how much of the prior month's loan would Gusto be able to pay off in June, if any? What is Gusto's projected ending cash balance in June? Loan paid off Projected ending cash balance $ $

Gusto Enterprises had a tough month in May, but June's sales and cash activity are looking strong. Gusto had to borrow $4,000 in May in order to maintain the company's required minimum balance of $5,000. The loan carries an annual interest rate of 6%, with monthly interest payments required. Loan withdrawals, in $1,000 increments, are assumed to be taken out on the first of the month. Loan payments, also in $1,000 increments, reduce the principal on the last day of the month. The June 1 cash balance is $5,780. With budgeted cash receipts of $105,600 and cash disbursements of $103,400 in June, how much of the prior month's loan would Gusto be able to pay off in June, if any? What is Gusto's projected ending cash balance in June? Loan paid off Projected ending cash balance $ $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 4MC

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Halifax Shoes has 30% of its sales in cash and the remainder on credit. Of the credit sales, 65% is collected in the month of sale, 25% is collected the month after the sale, and 5% is collected the second month after the sale. How much cash will be collected in August if sales are estimated as $75,000 in June, $65,000 in July, and $90,000 in August?
Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.
The George Company has a policy of maintaining an end-of-month cash balance of at least $30,000.In months where a shortfall is expected, the company can draw in $1,000 increments on a line ofcredit it has with a local bank, at an interest rate of 12% per annum. All borrowings are assumed forbudgeting purposes to occur at the beginning of the month, while all loan repayments (in $1,000increments of principal) are assumed to occur at the end of the month. Interest is paid at the end ofeach month. For April, an end-of-month cash balance (prior to any financing and interest expense)of $18,000 is budgeted; for May, an excess of cash collected over cash payments (prior to any interest payments and loan repayments) of $22,000 is anticipated. What is the interest payment estimatedfor April (there is no bank loan outstanding at the end of March)? What is the total financing effect(cash interest plus loan transaction) for May?
ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $273,446 deficit and a 40% chance for no deficit at all. The line of credit charges 0.52% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 9% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices $5,313 $5,321 $5,304 $5,309 $5,317
From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 75% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $270,000, and March sales totaled $300,000. Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. 2. What is the accounts receivable balance on June 30th?
The Professional Service Company expects 80% of sales for cash and 20% on credit. The company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected (that is, they are "bad debts"). Expected sales for June, July, and August are $60,000, $66,000, and $56,000, respectively. What are the company's expected total cash receipts in August?
Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices: $5,255 $5,240 $5,251 $5,260 $5,246
Bruno Industries expects credit sales for January, February, and March to be $200,000, $260,000, and $300,000, respectively. It is expected that 55% of the sales will be collected in the month of sale, 35% will be collected in the following month, and 10% will be collected in the second month after the sales. How much will the closing balance of Accounts Receivable at the end of March be? 3. In the beginning of the period, XYZ Ltd. expects to sell 15,000 units for $10 each. Its standard cost card shows the total cost of production per unit is $8. At the end of the period, the company reported actual sales revenue at $120,000 for 16,000 units sold. What was the sale price variance?
A firm collects 25% of its credit sale in the month of sale and the remainder in the following month. The credit sale for the month of June is GHC 150,000. It expert to pay bills of GHC 22,000 in July. The depreciation for the month is GHC 1000. If the company maintains an end month cash balance of GHC 100,000, what is the external finance required?
crane company management wants to maintain a minimum monthly cash balance of $26,500. At the begining of April, the cash balance is $26,500, expected cash receipts for April are $259,700, and cash disbursements are expected to be $270,300. How much cash, if any, must be borrowed to maintain the desired minimum monthly balance? Amount to be borrowed to maintain the desired minimum monthly balance ?
Management wants to know if there will be a need for short-term financing in February. Essential information is as follows: Estimated sales for January and February are $1.1 million and $750,000, respectively. Sixty percent of sales are for cash and 40 percent are credit sales that are collected the next month. Cash disbursements that vary with sales are 35 percent of sales. Fixed operating disbursements are $400,000 a month. Depreciation expense is $50,000 a month. A tax payment of $70,000 is due in January. A bond payment of $250,000 is owed and will be due in February. The cash balance at the beginning of January is $12,000. Management seeks a minimum cash balance of $9,000. December credit sales were $110,000. Round your answers to the nearest dollar. Use a minus sign to enter shortage of cash, if any. January February Excess (shortage) of cash $ $ The firm need short-term funds in February.
Assume that sales and expenses forecasts for months April, May, June, and July are as follows. month, 60% are paid in the next month, and 20% are paid in the second month after. All expenses in a month are paid in the same month. There is a $20,000,000 minimum required cash balance at the end of each month, and any shortage from this minimum requirement will be covered by obtaining a loan. Any excess over $20,000,000 will be used to reduce or pay off cumulative loan. Initial cash balance in June is $6,000,000 and there is no cumulative loan at this time. Monthly prorated tax rate is 2%, and monthly interest rate on cumulative loan is 1%. Requirements: Prepare cash budget proforma for months June and July and interpret the result in detail.