Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 16, Problem 12QP

a)

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 45days.

Introduction:

Cash collection is the amount collected through business. It is a task of accounts receivables.

Average cash collection period is the number of days taken to collect the cash from the customers.

Cash collection period=Number of days or months in a year Debtors turnover

a)

Expert Solution
Check Mark

Answer to Problem 12QP

The cash collection for each quarters are Quarter 1 is $4,050, Quarter 2 is $4,750, Quarter 3 is $5,000 and Quarter 4 is $4,400.

Explanation of Solution

Given information:

Accounts receivable at the beginning of the year is $1900, and the collection period is 45 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

Ending receivables=904590=4590Ending receivables=12of current sales

Therefore, the ending receivable will be half of the current year sales.

Ending receivables=12($4300)=$2,150

Hence, the ending receivables are $2,150.

Compute the cash collection for quarter 1:

Cash collection=Beginning receivables+SalesEnding receivables=$1900+$4,300$2,150=$4,050

Hence, the cash collected for the quarter 1 is $4,050.

Compute the ending receivables for quarter 2:

Ending receivables=12of current sales=12($5,200)=$2,600

Hence, the ending receivables are $2,600.

Compute the cash collection for quarter 2:

Cash collection=Beginning receivables+SalesEnding receivables=$2,150+$5,200$2,600=$4,750

Hence, the cash collected for the quarter 2 is $4,750.

Compute the ending receivables for quarter 3:

Ending receivables=12of current sales=12($4800)=$2,400

Hence, the ending receivables are $2,400.

Compute the cash collection for quarter 3:

Cash collection=Beginning receivables+SalesEnding receivables=$2,600+$4,800$2,400=$5,000

Hence, the cash collected for the quarter 1 is $5,000.

Compute the ending receivables for quarter 4:

Ending receivables=12of current sales=12($4,000)=$2,000

Hence, the ending receivables are $2,000.

Compute the cash collection for quarter 4:

Cash collection=Beginning receivables+SalesEnding receivables=$2,400+$4,000$2,000=$4,400

Hence, the cash collected for the quarter 1 is $4,400.

b)

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 60 days.

b)

Expert Solution
Check Mark

Answer to Problem 12QP

The cash collection for each quarter: Quarter 1 is $4,767, Quarter 2 is $4,900, Quarter 3 is $4,933, and Quarter 4 is $4,267.

Explanation of Solution

Given information:

Accounts receivables at the beginning of the year are $1,900 and the collection period is 60 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

Ending receivables=906090=3090Ending receivables=13of current sales

Therefore, the ending receivable will be half of the current year sales.

Compute ending receivables for quarter 1:

Ending receivables=13($4,300)=$1,433

Hence, the ending receivables are $1,433.

Compute the cash collection for quarter 1:

Cash collection=Beginning receivables+SalesEnding receivables=$1,900+$4,300$1,433=$4,767

Hence, the cash collected for the quarter 1 is $4,767.

Compute ending receivables for quarter 2:

Ending receivables=13of current sales=13($5,200)=$1,733.33

Hence, the ending receivables are $1,733.33.

Compute the cash collection for quarter 2:

Cash collection=Beginning receivables+SalesEnding receivables=$1,433+$5,200$1,733=$4,900

Hence, the cash collected for the quarter 2 is $4,900.

Compute the ending receivables for quarter 3:

Ending receivables=13of current sales=13($4800)=$1,600

Hence, the ending receivables are $1,600.

Compute the cash collection for quarter 3:

Cash collection=Beginning receivables+SalesEnding receivables=$1,733+$4,800$1,600=$4,933

Hence, the cash collected for the quarter 1 is $4,933.

Compute the ending receivables for quarter 4:

Ending receivables=13of current sales=13($4,000)=$1,333

Hence, the ending receivables are $1,333.

Compute the cash collection for quarter 4:

Cash collection=Beginning receivables+SalesEnding receivables=$1,600+$4,000$1,333=$4,267

Hence, the cash collected for the quarter 1 is $4,267.

c)

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 30 days.

Introduction:

Cash collection is the amount collected through business. It is a task of accounts receivables.

Average cash collection period is the number of days taken to collect the cash from the customers.

Cash collection period=Number of days or months in a year Debtors turnover

c)

Expert Solution
Check Mark

Answer to Problem 12QP

The cash collections for each quarter are Quarter 1 is $3,333, Quarter 2 is $4,600, Quarter 3 is $5,067, and Quarter 4 is $4,533.

Explanation of Solution

Given information:

Accounts receivable at the beginning of the year is $1900, and the collection period is 30 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

Ending receivables=903090=6090=23of current sales

Therefore, the ending receivables will be half of the current year sales.

Ending receivables=23($4300)=$2,866.67

Hence, the ending receivables are $2,866.67.

Compute the cash collection for quarter 1:

Cash collection=Beginning receivables+SalesEnding receivables=$1,900+$4,300$2,867=$3,333

Hence, the cash collected for the quarter 1 is $3,333.

Compute ending receivables for quarter 2:

Ending receivables=23of current sales=23($5,200)=$3,466.67

Hence, the ending receivables are $3,466.67.

Compute the cash collection for quarter 2:

Cash collection=Beginning receivables+SalesEnding receivables=$2,867+$5,200$3,467=$4,600

Hence, the cash collected for the quarter 2 is $4,600.

Compute the ending receivables for quarter 3:

Ending receivables=23of current sales=23($4,800)=$3,200

Hence, the ending receivables are $3,200

Compute the cash collection for quarter 3:

Cash collection=Beginning receivables+SalesEnding receivables=$3,467+$4,800$3,200=$5,067

Hence, the cash collected for the quarter 1 is $5,067.

Compute the ending receivables for quarter 4:

Ending receivables=23of current sales=23($4,000)=$2,667

Hence, the ending receivables are $2,667.

Compute the cash collection for quarter 4:

Cash collection=Beginning receivables+SalesEnding receivables=$3,200+$4,000$2,667=$4,533

Hence, the cash collected for the quarter 1 is $4,533.

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Chapter 16 Solutions

Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

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