Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below table. Following Quarter in Coming Year Year First First Second Third Fourth Quarter Sales forecast $420 $342 $346 $394 $394 Paymore's labor and administrative expenses are $75 per quarter and interest on long-term debt is $50 per quarter. Paymore's cash balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $30. Assume that Paymore can borrow up to $346 from a line of credit at an interest rate of 2% per quarter. On average, one-third of sales are collected in the quarter that they are sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $346. On average, two-thirds of purchases are paid for in the quarter that they are purchased, and one-third are paid in the following quarter. Prepare a short-term financing plan using the above table. (Leave no cells blank. Enter 'O' when necessary. Negative amounts should be indicated by a minus sign. Round order, payment, and collection calculations to the nearest whole number. Enter your answers in the Table in millions of dollars, rounded to 2 decimal places.)
Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below table. Following Quarter in Coming Year Year First First Second Third Fourth Quarter Sales forecast $420 $342 $346 $394 $394 Paymore's labor and administrative expenses are $75 per quarter and interest on long-term debt is $50 per quarter. Paymore's cash balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $30. Assume that Paymore can borrow up to $346 from a line of credit at an interest rate of 2% per quarter. On average, one-third of sales are collected in the quarter that they are sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $346. On average, two-thirds of purchases are paid for in the quarter that they are purchased, and one-third are paid in the following quarter. Prepare a short-term financing plan using the above table. (Leave no cells blank. Enter 'O' when necessary. Negative amounts should be indicated by a minus sign. Round order, payment, and collection calculations to the nearest whole number. Enter your answers in the Table in millions of dollars, rounded to 2 decimal places.)
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 13P
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Transcribed Image Text:Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below
table.
Following
Quarter in Coming Year
Year
First
First
Second
Third
Fourth
Quarter
Sales forecast
$420
$342
$346
$394
$394
Paymore's labor and administrative expenses are $75 per quarter and interest on long-term debt is $50 per quarter. Paymore's cash
balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $30. Assume that Paymore can borrow up to
$346 from a line of credit at an interest rate of 2% per quarter. On average, one-third of sales are collected in the quarter that they are
sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $346. On
average, two-thirds of purchases are paid for in the quarter that they are purchased, and one-third are paid in the following quarter.
Prepare a short-term financing plan using the above table. (Leave no cells blank. Enter 'O' when necessary. Negative amounts
should be indicated by a minus sign. Round order, payment, and collection calculations to the nearest whole number. Enter your
answers in the Table in millions of dollars, rounded to 2 decimal places.)
Quarter
(figures in $ millions)
First
Second
Third
Fourth
A. Cash requirements
Cash required for operations
$
40.00
$
30.00
$
30.00
$
30.00
Interest on bank loan
Total cash required
$
40.00
$
30.00
$
30.00
$
30.00
B. Cash raised in quarter
Line of credit
Total cash raised
$
0.00 $
0.00
$
0.00
$
0.00
C. Repayments of bank loan
D. Addition to cash balances
E. Line of credit
Beginning of quarter
End of quarter
$
0.00
$
0.00
$
0.00
$
0.00
24
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