Paymore Products places orders for goods equal to 80% of its sales forecast in t

Question

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

The firm pays for its goods with a 1-month delay. Therefore, on average, three-fourths of purchases are paid for in the quarter that they are purchased, and one-fourth are paid in the following quarter.

Paymore’s customers pay their bills with a 2-month delay. Therefore, on average, two-fourths of sales are collected in the quarter that they are sold, and two-fourth are collected in the following quarter. Assume that sales in the last quarter of the previous year were $440.

Paymore’s labor and administrative expenses are $60 per quarter and that interest on long-term debt is $52 per quarter.

Suppose that cash balance at the start of the first quarter is $50 and its minimum acceptable cash balance is $40.

Now assume that Paymore can borrow up to $150 from a line of credit at an interest rate of 2% per quarter. Prepare a short-term financing plan. Refer Spreadsheet 19.3 (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows:

Explanation / Answer

   First    Second    Third    Fourth   A. Cash requirements (order for sales)(80% of sales foprecast for next quarter) 376 352 392 392    Cash required for operations (3/4 of purchases in current quarter and 1/4 of purchase in previous quarter) 378 358 382 392    Interest on bank loan (Line of credit 150*2%) 3 3 3 3 Labor and interest expenses 112 112 112 112       Total cash required 493 473 497 507   B. Cash raised in quarter (2/4 of current quarter sale + 2/4 of previous quarter sale) 460 475 455 832.5      Line of credit 150 150 150 150        Total cash raised 610 625 605 982.5   C. Repayments of bank loan   D. Addition to cash balances               E. Line of credit    Beginning of quarter 50 167 319 427    End of quarter 167 319 427 902.5

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