Chapter 3: 7DQ (page 247)
Commercial paper may show up on corporate balance sheets as either a current asset or a current liability. Explain this statement.
The commercial paper is reported as an asset when it is purchased and as a liability when it is issued by the company.
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What are three quantitative measures that can be applied to the collection policy of the firm?
Antonio Banderos & Scarves make headwear that is very popular in the fall-winter season. Units sold are anticipated as follows:
October | 1,250 |
November | 2,250 |
December | 4,500 |
January | 3,500 |
Total units | 11,500 |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory build-up.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 11,500 items over four months at a level of 2,875 per month.
a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.
b. If the inventory costs $8 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent or the monthly rate.)
Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has \(500,000 in fixed assets. Assume a tax rate of 40 percent.
b. Given that Guardian’s earnings before interest and taxes are \)200,000, calculate earnings after taxes for each of your alternatives.
Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of \(6 per order, and carrying costs of \)2.40 per pipe.
a. What is the economic ordering quantity?
Darla’s Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period
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