Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
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
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 1M
Summary Introduction
Case summary:
Company P manufacturing is the manufacturer of cardboard boxes. The company decided to put all its receivables in one shoebox and all payables in others.
Due this disorganized system, the company employed Person X. The company has a cash balance of $240,000 and planning to purchase a new box folding in the fourth quarter at a cost of $445,000. The purchase of machinery is in cash mode because of offered discounts. It needs to maintain minimum cash balance of $125,000.
Characters in the case:
- Company P: The manufacturer
- Person X: The new employee
To determine: The cash budget of P manufacturers
Introduction:
Cash budget is the numerical expression of cash inflows and outflows of the company during a specific period.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Iris Plant owns and operates three floral shops in Magnolia, Texas. The accounting functions are performed manually. Each of the shops has a manager who oversees the cash receipts and purchasing functions for the shop. A clerk at the central shop pays all the bills and also prepares payroll checks and maintains the general journal. Iris is seriously considering switching to a computerized system. With so many information system packages on the market, Iris is overwhelmed. Advise Iris as to which business modules you think her organization could find beneficial. Discuss advantages, disadvantages, and internal control issues.
B. Harper is surfing the Internet and finds a great pair of rollerblades at a really low price, but he has never heard of the company and is concerned that the product he ordered may not be the product he receives. Harper may be more willing to place an order with this company ifa. The website displays the WebTrust seal.b. The company provides its annual report and the report of the independent auditors on its website.c. The company provides a money-back guarantee.d. Only a partial payment is required prior to receiving the product.
You are working as a summer intern at a rapidly growing orgainc food distribution. Part of your responsibility is to assist in the accounts payable department. You notice that most of the bills are not paid with in discount period. The manager of the accounts payable sees the bills are organized by vendor, like the accounts payable ledger, and she is too busy to keep track of the discounts period. Besides, the owner has told her that The 1% and 2% discount available or not worth worrying about. 1. Explain to the owner why it is expensive not to take it advantage to cash discounts on credit purchases.
suggest a way to file (organize) suppliers invoices so that they are paid with in the discount period.
Chapter 18 Solutions
Fundamentals of Corporate Finance
Ch. 18.1 - What is the difference between net working capital...Ch. 18.1 - Prob. 18.1BCQCh. 18.1 - List five potential sources of cash.Ch. 18.1 - Prob. 18.1DCQCh. 18.2 - Prob. 18.2ACQCh. 18.2 - Prob. 18.2BCQCh. 18.2 - Prob. 18.2CCQCh. 18.3 - What keeps the real world from being an ideal one...Ch. 18.3 - What considerations determine the optimal size of...Ch. 18.3 - Prob. 18.3CCQ
Ch. 18.4 - Prob. 18.4ACQCh. 18.4 - Prob. 18.4BCQCh. 18.5 - Prob. 18.5ACQCh. 18.5 - Describe two types of secured loans.Ch. 18.6 - Prob. 18.6ACQCh. 18.6 - In Table 18.6, what would happen to Fun Toys...Ch. 18 - Prob. 18.1CTFCh. 18 - A firm has an operating cycle of 64 days and a...Ch. 18 - Prob. 18.4CTFCh. 18 - Prob. 18.5CTFCh. 18 - Operating Cycle [LO1] What are some of the...Ch. 18 - Prob. 2CRCTCh. 18 - Prob. 3CRCTCh. 18 - Cost of Current Assets [LO2] Loftis Manufacturing,...Ch. 18 - Operating and Cash Cycles [LO1] Is it possible for...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Prob. 8CRCTCh. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Changes in the Cash Account [LO4] Indicate the...Ch. 18 - Prob. 2QPCh. 18 - Changes in the Operating Cycle [LO1] Indicate the...Ch. 18 - Prob. 4QPCh. 18 - Calculating Cash Collections [LO3] The Morning...Ch. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Calculating Payments [LO3] Sedman, Corp., has...Ch. 18 - Calculating Payments [LO3] The Torrey Pine...Ch. 18 - Calculating Cash Collections [LO3] The following...Ch. 18 - Calculating the Cash Budget [LO3] Here are some...Ch. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Calculating the Cash Budget [LO3] Wildcat, Inc.,...Ch. 18 - Prob. 16QPCh. 18 - Costs of Borrowing [LO3] In exchange for a 400...Ch. 18 - Prob. 18QPCh. 18 - Prob. 1MCh. 18 - Prob. 2MCh. 18 - Prob. 3M
Knowledge Booster
Similar questions
- You are working as a summer intern at a rapidly growing organic food distributor. Part of your responsibility is to assist in the accounts payable department. You notice that most bills from suppliers are not paid within the discount period. The manager of accounts payable says the bills are organized by vendor, like the accounts payable ledger, and she is too busy to keep track of the discount periods. Besides, the owner has told her that the 1% and 2% discounts available are not worth worrying about.arrow_forwardMrs. Paul the owner of several supermarkets across the country is concerned about the errors being made by the cashiers while carrying out their daily duties. Customers are constantly complaining about being overcharged for items and this has significantly affected customer service. Mrs. Paul is very worried and has sought your help on this matter. Her inventory and the cashiering system only carry prices that are stuck to each item, which then needs to be manually entered to calculate the final price. what is the underlying problem as it relates to the errors being made and recommend a solution, incorporating technology, to avoid a reoccurrence of this going forward?arrow_forwardA large retailer is going to run an experiment at one of its stores to see how cost effective it will be to imbed merchandise with small radio frequency identification (RFID) chips. Shoppers will select items from the store and walk out without stopping to pay at a checkout lane. The RFID chips will record what items are taken and will automatically deduct their price from shoppers’ bank accounts. The retailer expects to save the cost of staffing 12 checkout lanes, which amounts to $100,000 per year. How much can the retailer afford to spend on its RFID investment if the system has a life of 10 years and no residual value? The retailer’s interest rate is 15% per year.arrow_forward
- James Burrow is the loan officer for the National Bank of Dallas.National has a loan of $325,000 outstanding to Regional Delivery Service, a companyspecializing in delivering products of all types on behalf of smaller companies. National’scollateral on the loan consists of 25 small delivery trucks with an average original cost of$24,000.Burrow is concerned about the collectibility of the outstanding loan and whether thetrucks still exist. He therefore engages Samantha Altman, CPA, to count the trucks, usingregistration information held by Burrow. She was engaged because she spends most ofher time auditing used automobile and truck dealerships and has extensive specializedknowledge about used trucks. Burrow requests that Altman issue a report stating thefollowing:1. Which of the 25 trucks is parked in Regional’s parking lot on the night of June 30,2013.2. Whether all of the trucks are owned by Regional Delivery Service.3. The condition of each truck, using the guidelines of poor, good,…arrow_forwardAdel & Co is a company manufacturing various types of mini bar refrigerators for hotels. The company does not have an internal control department. Below is the company’s sale and receivables system:i. Sales staff will carry out credit references checks for all new customers. ii. These references will be submitted to the finance department, where the finance manager will approve on accepting a new customer if the customer has a good credit rating. iii. Once this is completed, an appropriate credit limit is set for each customer by the financial controller.iv. Customers must use a standard sales order form when placing orders.v. Sales clerks will enter details of the sales order into the system which then check if the goods ordered are available and if the customer has sufficient credit limit available for this order. vi. All forms are pre numbered sequentially.vii. Prices for all products are stored in the system’s master file. viii. These details can only be amended by the…arrow_forwardYou are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to resell has escalated during the latter part of this period. Your client, Javonte Gish, mentions that because her business sells perishable goods, she has striven to maintain a FIFO flow of goods. Although sales are good, the increasing cost of inventory has put the business in a tight cash position. Gish has expressed concern regarding the ability of the business to meet income tax obligations. Required Prepare a memorandum that identifies, explains, and justifies the inventory method you recommend that Ms. Gish adopt.arrow_forward
- ACME Corporation is a software development company that develops software for their clients. Their most popular product of them all is an accounting software suite. It is targeted for small and medium enterprises, and available to be bought in different online software stores. Apart from the basic cashflow management features, it also has various plugins to integrate different business operations such as inventory, purchases and invoicing. A perpetual license costs a company around HK$100,000 without the need to pay periodically for maintenance. a) A sales representative had been approaching Company X proactively, asking them to buy a copy of their product. A manager in Company X thought the product itself is suitable, but rejected the offer, quoting the high price and their investment of buying the software is too risky for the company to bear. If you were an executive in ACME and wanted to address concerns expressed by Company X. What do you think would be a suitable alternative…arrow_forwardDorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,800 per month, and the rent is $2,200 per month. In addition, she must make a tax payment of $13,000 in December. The current cash on hand (on December 1) is $700, but Koehl has agreed to maintain an average bank balance of $5,000 - this is her target cash balance. (Disregard the amount in the cash register, which is…arrow_forwardDorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,500 per month, and the rent is $2,600 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $4,500 - this is her target cash balance. (Disregard the amount in the cash register, which is…arrow_forward
- Stuart Airlines is a small airline that occasionally carries overload shipments for the overnight delivery company Never-Fail, Inc. Never-Fail is a multimillion-dollar company started by Wes Never immediately after he failed to finish his first accounting course. The company's motto is "We Never-Fail to Deliver Your Package on Time." When Never-Fail has more freight than it can deliver, it pays Stuart to carry the excess. Stuart contracts with independent pilots to fly its planes on a per-trip basis. Stuart recently purchased an airplane that cost the company $6,192,000. The plane has an estimated useful life of 25,800,000 miles and a zero salvage value. During the first week in January, Stuart flew two trips. The first trip was a round trip flight from Chicago to San Francisco, for which Stuart paid $350 for the pilot and $300 for fuel. The second flight was a round trip from Chicago to New York. For this trip, it paid $300 for the pilot and $150 for fuel. The round trip between…arrow_forwardYou are an assistant in the accounting department of Hasher Electronics, a small electronicsretailer. Hasher has a loan that requires the company to maintain a minimum cash balance of$125,000, as reported on its year-end balance sheet. Although Hasher has struggled in recent years,as of yesterday it looked as though Hasher would be able to meet this requirement. The cash balance in Hasher’s general ledger was $130,000 and the company’s credit manager was expecting toreceive a $30,000 electronic funds transfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loan requirement, so she had delayedmaking payments to Hasher’s suppliers for several days. But in anticipation of receiving the EFT,she decided yesterday to issue checks to suppliers totaling $15,000.It is now the last day of the fiscal year and your supervisor approaches you with a problem.Your big customer had backed out at the last minute, indicating it had “some…arrow_forwardOn a recent trip to Hongkong, Brian Santos, sales manager of Micro- electronic Devices, took his wife at company expense. Erika Tan, vice- president of sales and Santos' boss, thought his travel and entertainment expenses seemed excessive. Tan approved the reimbursement, however, because she owed Santos a favor. Tan, well aware that the company president routinely reviewed all expenses recorded in the cash disbursements journal, had the accountant record Santos' wife's expenses in the general journal as follows: Sales Promotion Expense 35,000 Cash 35,000 Does recording the transaction in the general journal rather than in the cash disbursements journal affect the amounts of cash and total expenses reported in the financial statements?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning