Chapter 3: 8DQ (page 182)
What does the term structure of interest rates indicate?
The term structure of interest rates indicates the market participant’s expectations about future variations in the interest rates.
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Oral Roberts Dental Supplies has annual sales of \(5,200,000. Ninety percent are on credit. The firm has \)559,000 in accounts receivable. Compute the value of the average collection period.
What is the difference between pledging accounts receivable and factoring accounts receivable?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
c. If the firm likes to see its bills collected in 35 days, should it be satisfied with the average collection period?
Explain how rapidly expanding sales can drain the cash resources of a firm.
Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows:
March | 3,250 |
April | 7,250 |
May | 11,500 |
June | 9,500 |
Total units | 31,500 |
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. The production manager thinks the preceding assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 31,500 units over four months at a level of 7,875 per month.
a. What is the ending inventory at the end of each month? Compare the unit sales to the units produced and keep a running total.
b. If the inventory costs $12 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 0.01 as the monthly rate.)
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