Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.


Click here for the solution: Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

Sharam Industries has a 120-day operating cycle

Sharam Industries has a 120-day operating cycle. If its average age of inventory is 50 days, how long is its average collection period? If its average payment period is 30 days, what is its cash conversion cycle? Place all of this information on a time line similar to figure

Click here for the solution: Sharam Industries has a 120-day operating cycle

Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000

E16–5 Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000. What is the dollar amount of interest paid on the commercial paper? What is the effective 120-day rate on the paper?

Click here for the solution: Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000

The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253

E6–2 The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253.

a. Use the information to plot a yield curve for this date.
b. If the expectations hypothesis is true, approximately what rate of return do investors expect a 5-year Treasury note to pay 5 years from now?
c. If the expectations hypothesis is true, approximately (ignoring compounding) what rate of return do investors expect a 1-year Treasury security to pay starting 2 years from now?
d. Is it possible that even though the yield curve slopes up in this problem, investors do not expect rising interest rates? Explain.

Click here for the solution: The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253

The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

E6–3 The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table:

Maturity Yield Real rate of interest
3 months 1.41% 0.80%
6 months 1.71 0.80
2 years 2.68 0.80
3 years 3.01 0.80
5 years 3.70 0.80
10 years 4.51 0.80
30 years 5.25 0.80

Use the information in the preceding table to calculate the inflation expectation for each maturity.

Click here for the solution: The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan

Problem 9-21 The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan. The purpose of the loan is to assist the company in acquiring inventories. Because the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. The following data are available for the months April through June, during which the loan will be used:

a. April 1, the start of the loan period, the cash balance will be $24,000. Accounts receivable on April 1 will total $140,000, of which $120,000 will be collected during April and $16,000 will be collected during May. The remainder will be uncollectible.

b. Past experience shows that 30% of a month’s sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% represents bad debts that are never collected. Budgeted sales and expenses for the three-month period follow:

April May June
Sales (all on account) $300,000 $400,000 $250,000
Merchandise Purchases $210,000 $160,000 $130,000
Payroll $20,000 $20,000 $18,000
Lease Payments $22,000 $22,000 $22,000
Advertising $60,000 $60,000 $50,000
Equipment Purchases --- --- $65,000 (nothing in the first 2 months)
Depreciation $15,000 $15,000 $15,000


c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid during April, total $140,000

d. In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June. Interest on the loan will total $1,200.

Requirement 1:
Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total. (Deficiencies should be preceded by a minus sign when appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the $ sign in your response.)

Requirement 2:
Prepare a cash budget, by month and in total, for the three-month period. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the $ sign in your response.)

Requirement 3:
If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned?

Click here for the solution: The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90- day loan

(Break-even and other CVP relationships) Cedars Hospital has average revenue of $180 per patient day

3. Break-even and other CVP relationships

Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.

a. How many patient days does the hospital need to break even?
b. What level of revenue is needed to earn a target income of $540,000?
c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?

Click here for the solution: (Break-even and other CVP relationships) Cedars Hospital has average revenue of $180 per patient day

(Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers

(Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customer each day, in the form of checks, totaling $23,000. The cash from the payments is available to the firm after two days. 

a) Calculate the company’s disbursement float, collection float, and net float.

b) How would you answer to part (a) change if the collected funds were available in one day instead of two?

Click here for the solution: (Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers