Calculate the operating and cash cycles.

5. Calculating Cash Collections. The Bass Company has projected the following quarterly sales amounts for the coming year:

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a. Accounts receivable at the beginning of the year are $295. Bass has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:

b. Rework (a) assuming a collection period of 60 days.

c. Rework (a) assuming a collection period of 30 days.

LO 1 6. Calculating Cycles. Consider the following financial statement information for the Amaryliss Corporation:

Assume all sales are on credit. Calculate the operating and cash cycles. How do you interpret your answer?

LO 3 7. Factoring Receivables. Your firm has an average collection period of 34 days. Current practice is to factor all receivables immediately at a 2 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely.

LO 3 8. Calculating Payments. Grohl Products has projected the following sales for the coming year:

Sales in the year following this one are projected to be 15 percent greater in each quarter.

a. Calculate payments to suppliers assuming that the company places orders during each quarter equal to 30 percent of projected sales for the next quarter. Assume that the company pays immediately. What is the payables period in this case?

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b. Rework (a) assuming a 90-day payables period.

c. Rework (a) assuming a 60-day payables period.


 

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