Kmgt432

Topics: Cash flow, Net present value, Internal rate of return Pages: 7 (1554 words) Published: June 19, 2013
Page 1 of 29

ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD
LEVEL Paper Time Allowed NOTE Q.1 Give the information that follow, prepare a cash budget for the Sitara Group Industries for the first six months of 19x2. a. All prices and costs remain constant. b. Sales are 75% for credit and 25% for cash. c. With respect to credit sales. 60% are collected in the month after the sale, 30% in the second month, and 10% in the third. Bad-debt losses are insignificant. d. Sales actual and estimated are October 19X1 $300,000 November 19X1 350,000 December 19X1 400,000 January 19X2 150,000 February 19X2 200,000 e. f. March 19X2 April 19X2 May 19X2 June 19X2 July 19X2 $200,000 300,000 250,000 200,000 300,000 MBA Financial Management CC. 562/5535 3 Hrs Semester Spring 2006 Maximum Marks 100 Pass Marks 40

ATTEMPT FIVE QUESTIONS. ALL CARRY EQUAL MARKS

Payments for purchases of merchandise are 80% of the following month’s anticipated sales. Wages and salaries are. January March May $30,000 50,000 40,000 February April June $40,000 50,000 35,000

g h. i. j. k.

Rent is $2,000 a month. Interest of $7,500 is due on the last day of each calendar quarter, and no quarterly cash dividends are planned. A tax prepayment of $$50,000 for 19X2 incomes is due in April. A capital investment of $30,000 is planned in June to be paid for then. The company has a cash balance of $100,000 at December 31, 19X1, which is the minimum desired level for cash. Funds can be borrowed in multiples of $5,000. (Ignore interest on such borrowings.)

Suggested Solution By Prof. F.R. Tariq For any query please contact at azeez786@hotmail.com, 0333-4233770, 0321-4401660

Page 2 of 29 Q.1 Answer:Sitara Industries Cash Budget – January to June 19 x 2 Oct Sales Credit Sales 300,000 225,000

Nov

Dec

Jan

Feb
200,000 150,000

Mar
200,000 150,000

Apr

May

June
200,000 150,000

350,000 400,000 150,000 262,500 300,000 112,500

300,000 250,000 225,000 187,500

Collections
60% 30% 10% Cash Total Cash collection 135,000 157,000 180,000 67,500 78,750 22,500 100,000 37,500 318,750 67,500 90,000 26,250 50,000 233,750 90,000 33,750 30,000 50,000 203,750 90,000 135,000 112,500 45,000 45,000 67,500 11,250 15,000 15,000 75,000 62,500 50,000 221,250 257,500 245,000

75,000

87,500

Payments Purchases Rent Wages Tax payments Capital Investment Interest Total Payments Net Cash flow Beginning cash Ending cash Bank Borrowing

160,000 2,000 30,000

160,000 240,000 2,000 2,000 40,000 50,000

192,000 126,750 100,000 226,750 0

202,000

7,500 299,500

200,000 160,000 240,000 2,000 2,000 2,000 50,000 40,000 35,000 50,000 30,000 7,500 302,000 202,000 314,500 (80,750) 55,500 (69,500) 162,750 82,000 137,500 82,000 137,500 68,000 20,000 0 35,000

31,750 (95,750) 226,750 258,500 258,500 162,750 0 0

Q.2 The Kari Kid Corporation manufactures only product: planks. The single raw material used in making planks is the dint. For each plank manufactured 12 dints are required. Assume that the company manufactures 150,000 planks per year, that demand for planks in perfectly steady throughout the year, that it costs $200 each time dints are ordered and that carrying costs are $8 per dint per year. Required: (a) (b) (c)

Determine the economic order quantity of dints What are total inventory costs for Kari Kid? How many times per year would inventory be ordered?

Suggested Solution By Prof. F.R. Tariq For any query please contact at azeez786@hotmail.com, 0333-4233770, 0321-4401660

Page 3 of 29 Q.2 Answer:(a) EOQ = √ 2 (O) (S) C √ 2 (200) (1,800,000) 8 9487 dints

=

= (b) Total Annual Inventory Cost = =

C (Q/2) + O (S/Q)

$8 (9487) + $200 (1,800,000) 2 9487 = $75,895 (C) Number of orders per year = = Q.3 The Dud Company has been factoring its accounts receivable for the past five years. The factor charges a fee of 2% and will lend up to 80percent of the volume of receivables purchased for an additional 1.5 percent per month. The firm...
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