Which company will need long-term funds? Multiple Choice A computer company wants to expand its business by acquiring a software training company. While filling a crucial order, a piece of the company’s equipment needed emergency repairs. A new grocery chain opened up and ran a temporary promotional program to get shoppers into the store. A local gift shop has a poorly managed inventory that is seriously affecting its cash flow.
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Which company will need long-term funds?
Multiple Choice
-
A computer company wants to expand its business by acquiring a software training company.
-
While filling a crucial order, a piece of the company’s equipment needed emergency repairs.
-
A new grocery chain opened up and ran a temporary promotional program to get shoppers into the store.
-
A local gift shop has a poorly managed inventory that is seriously affecting its cash flow.
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- Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl’s Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl’s purchases must be paid for during the following month. Koehl pays herself a salary of $4,800 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $6,000—this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.) The estimated sales and purchases for December, January, and February are shown in the following table. Purchases during November amounted to $140,000. Prepare a cash budget for December, January, and February. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company’s loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)A major retail outlet is facing shortages for its supplies, and is facing complaints from its customers. This was due to the company repeatedly delaying payments to their suppliers, resulting in quite a number of them refusing to give further orders until payments have been made. In the meantime, the retail company is facing cash flow problems. Comment on the main issue in the above scenario and suggest some solutions to overcome it.Suppose that you have been given a summer job as an intern at Issac Aircams, a company that man- ufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs: Depreciation on salespersons’ cars. Rent on equipment used in the factory. Lubricants used for machine maintenance. Salaries of personnel who work in the finished goods warehouse. Soap and paper towels used by factory workers at the end of a shift. Factory supervisors’ salaries. Heat, water, and power consumed in the factory. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) Advertising costs. Workers’ compensation insurance for factory employees. Depreciation on…
- Suppose that Demont has been given a summer job as an intern at Isaac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. Costs Product Cost/Period Cost 1. Depreciated on salesperson's cars 2. Rent on equipment used in the factory 3. Lubricants used for machine maintenance 4. Salaries of personnel who work in the finished goods warehouse 5. Soap and paper towels used by factory workers at the end of a shiftThe Big Screen, Inc. is a movie theater business. On several occasions Bill Seymore, theater owner, noticed that while the theater had a full house, the cash collections from ticket sales were considerably less than the number of seats times the price per ticket. Speculate as to what could be causing this situation and provide a plan for remedying the problem.The controller of a retail company has just had a $50,000 request turned down toimplement an ABC system. A senior vice president, in rejecting the request, noted,“Given a choice, I will always prefer a $50,000 investment in improving things acustomer sees or experiences, such as our shelves or our store layout. How does acustomer benefit by our spending $50,000 on a supposedly better accounting system?”How should the controller respond?
- For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. Company E is considering installing Valutemp temperature loggers in all of its refrigerated trucks for monitoring temperatures during transit. If the systems will reduce insurance claims by $500,000 in each of the next 5 years, how much should the company be willing to spend now if it uses an interest rate of 10% per year?A. Determine the decision nature of each of the following issues: What are the least expensive sources of funds for the firm? A large retailer such as LuLu Hypermarket, deciding whether to open another store? Will we purchase on credit or will we borrow in the short term and pay cash? The decision to develop and market a new software by a company such as Microsoft. Choosing among lenders and among loan types?A company manufacturing high precision polycarbonate plastic lenses wants to expand its manufacturing operations. The company is financially reasonably sound and has sufficient funds for the expansion. For purchase of machinery, the management has two options Option 1: Purchase new machinery by taking a bank loan Option 2: Purchase second-hand used machinery by utilizing its own funds Is it advisable for the company to purchase used equipment / machinery? What are the sources of used equipment / machinery?
- Which of the following business strategies is most likely toincrease the net cash flows of a software developer in theshort run but reduce them over a longer term?a. Develop software that is more costly to create but easierto update and improve. b. Lower the price of existing versions of products as cus-tomer demand begins to fall. c. Reduce expenditures for the purpose of developing newproducts.d. Purchase the building in which the business operates(assume the company currently rents this location).Fred Jackson, president and owner of Bailey Company, is concerned about the company's ability to obtain a loan from a major bank. The loan is a key factor in the firm's plan to expand its operations. Demand for the firm's product is high—too high for the current production capacity to handle. Fred is convinced that a new plant is needed. Building the new plant, however, will require an infusion of new capital. Fred calls a meeting with Karla Jones, financial vice president. Fred: Karla, what is the status of our loan application? Do you think that the bank will approve? Karla: Perhaps, but at this point, there is a real risk. The loan officer has requested a complete set of financials for this year and the past 2 years. He has indicated that he is particularly interested in the statement of cash flows. As you know, our income statement looks great for all 3 years, but the statement of cash flows will show a significant increase in receivables, especially for this year. It will also…Rock Designs, Inc. is a jewelry store located in Miramar Beach, Florida. After Valentine’s Day, the store often has excess cash to get it through the three-month slow season. The primary stockholder, Hardy Rock, wants to make this seasonal cash work for the business. Requirements Identify which investment class options are available to Rock Designs, Inc. The company identifies that it wants to invest in the technology sector and has narrowed its choices to three companies: Apple Inc., Google Inc., and Microsoft Corporation. Prepare a brief analysis comparing the three companies, and recommend one of the three based on your analysis.