Hey guys! A lot of us discussed and we decided to have a BBQ cum picnic outing at East Coast Park next Saturday. Here are the details:

11:55 PM
ZareNash aka MusiCraze

Hey Guys! Itz been a long time since someone blogged in this class blog. Anyway, one of our classmates, Ling Hui has suggested a class outing after the examz as the whole class would be separated next year due to attachment. Thus, here are the options u guys can choose for the outing.

1. Ice Skating (suggested by Ling Hui)
2. Movie Outing
3. Class Picnic (probably at East Coast Park where we can cycle etc)
4. Barbeque

Think about them and if u guys have any other ideas, feel free to voice them out! The poll is set up at the left side of the blog. Pls vote! Tanx! :D

Nash

11:07 AM
ZareNash aka MusiCraze

1. Review Questions

14-11) What is the role of the five Cs of credit in the credit selection activity?

14-13) What are the basic tradeoffs in a tightening of standards?

14-16) Why should a firm actively monitor the accounts receivable of its credit customers? How are the average collection period and an aging schedule used for credit monitoring?

2. Problems

14-9) Relaxation of credit standards
Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 10,000 to 11,000 units during the coming year; the average collection period is expected to increase from 45 to 60 days; and bad debts are expected to increase from 1% to 3% of sales. The sale price per unit is $40, and the variable cost per unit is $31. The firm’s required return on equal-risk investments is 25%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.)

14-11) Shortening the credit period
A firm is contemplating shortening its credit period from 40 to 30 days and believes that as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed change, sales will decline to 10,000 units. The sale price per unit is $56, and the variable cost per unit is $45. The firm has a required return on equal-risk investments of 25%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)

10:02 PM
Anonymous

FMGT TUTORIAL
Review Questions

1. 14-4) What is the difference between the firm’s operating cycle and its cash conversion cycle?

14-17) What is float and what are its three components?

14-18) What are the firm’s objectives with regard to collection float and to payment float?

14-21) What two characteristics make a security marketable? Why are the yields on nongovernment marketable securities generally higher than the yields on government issues with similar securities?

Problems

14-1) Cash conversion cycle
American Products is concerned about managing cash efficiently. On the average, inventories have an age of 90 days, and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365-day year.
a. Calculate the firm’s operating cycle.
b. Calculate the firm’s cash conversion cycle.
c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.

14-3) Multiple changes in cash conversion cycle
Garrett Industries turns over its inventory 6 times a year; it has an average collection period of 45 days and an average payment period of 30 days. The firm’s annual sales are $3 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365-day year.
a. Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.
b. Find the firm’s cash conversion cycle and resource investment requirement if it makes the following changes simultaneously.
(1) Shortens the average age of inventory by 5 days.
(2) Speeds the collection of accounts receivable by an average of 10 days.
(3) Extends the average payment period by 10 days.
c. If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profits as a result of the changes in part b?
d. If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?

14-13) Float
Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 2.5 days. Once received, the payments are processed in 1.5 days. After payments are deposited, it takes an average of 3 days for these receipts to clear the banking system.
a. How much collection float (in days) does the firm currently have?
b. If the firm’s opportunity cost is 11%, would it be economically advisable for the firm to pay an annual fee of $16,500 to reduce collection float by 3 days? Explain why or why not.

Thanks to Yeling again! Hahah. J

10:22 PM
Anonymous

FMGT TUTORIAL QNS
Review Questions
14-1) Why is short-term financial management one of the most important and time-consuming activities of the financial manager? What is net working capital?

14-3) Why does an increase in the ratio of current to total assets decrease both profits and risk as measured by net working capital? How do changes in the ratio of the current liabilities to total assets affect profitability and risk?

14-5) Why is it helpful to divide the funding needs of a seasonal business into its permanent and seasonal funding requirements when developing a funding strategy.

14-6) What are the benefits, costs and risks of an aggressive funding strategy and of a conservative funding strategy? Under which strategy is the borrowing often in excess of the actual need?

Problems
14-4) Aggressive versus conservative seasonal funding strategy
Dynabase Tool has forecast its total finds requirements for the coming year as shown in the following table.

Month
Amount

Month Amount
January $ 2,000,000
February $ 2,000,000
March $ 2,000,000
April $ 4,000,000
May $ 6,000,000
June $ 9,000,000
July $ 12,000,000
August $ 14,000,000
September $ 9,000,000
October $ 5,000,000
November $ 4,000,000
December $ 3,000,000

A. Divide the firm’s monthly funds requirements into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components.

B. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a conservative funding strategy. Assume that under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs.

C. Assuming that short-term funds cost 12% annually and that the cost of long-term funds is 17% annually, use the averages found in part a to calculate the total cost for each of the strategies described in part b.

D. Discuss the profitability-risk tradeoffs associated with the aggressive strategy and those associated with the conservative strategy.


also. thank you yeling! for helping to type out these. :)

2:01 PM
Anonymous