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-fourths are collected in the following quarter. Assume that sales in the last quarter of the previous year were $510.

Paymore’s labor and administrative expenses are $62 per quarter and that interest on long-term debt is $56 per quarter, work out the net cash inflow for Paymore for the coming year. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

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

Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Sources of cash Collection on accounts receivable 540*0.50+510*0.50=525 540*0.50+530*0.50=535 530*0.50+510*0.50=520 510*0.50+550*0.50=530 Uses of cash Payments to accounts payable 540*0.80*0.25+530*0.80*0.75= 426 510*0.80*0.75+530*0.80*0.25 =412 550*0.80*0.75+510*0.80*0.25 =432 550*0.80*0.25+550*0.80*0.75 =440 Labour charges 62 62 62 62 Interest 56 56 56 56 Total uses of cash 544 530 550 (28) Net Cash Inflow (19) 5 (30) 0

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