**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 firm’s 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 firm’s 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 firm’s 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 month’s 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 firm’s 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 firm’s cash status forecast for May, June, July and August.

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**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 firm’s cash conversion cycle

b) Calculate the firm’s 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.