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Chapter 4: 2DQ (page 405)

Explain how the collections and purchases schedules are related to the borrowing needs of the corporation

Short Answer

Expert verified

The purchase and collections schedules calculate how quickly purchases are paid for and receivables are recovered. The business must seek to borrowing to make up the shortfall if the amounts of accounts receivable collections is insufficient to pay all purchasing costs and other financial necessities.

Step by step solution

01

collections

The sum owed to a business for delivered or utilized goods or services customers haven't yet paid for is known as accounts receivable (AR) or collection.

02

 Step 2: Disadvantage

Even though accounts receivable is recorded on the business balance sheet as an asset, it can negatively affect its cash flow. The business must pay the inventory and labor costs to sell products and services to the customers. If the company cannot pay that cost, it affects cash flow

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Most popular questions from this chapter

Question:Beasley Ball Bearings paid a \(4 dividend last year. The dividend is expected to grow at a constant rate of 2 percent over the next four years. The required rate of return is 15 percent (this will also serve as the discount rate in this problem). Round all values to three places to the right of the decimal point where appropriate.

a. Compute the anticipated value of the dividends for the next four years. That is, compute D1, D2, D3, and D4; for example, D1 is \)4.08 (\(4 3 1.02).

b. Discount each of these dividends back to present at a discount rate of 15 percent and then sum them.

c. Compute the price of the stock at the end of the fourth year (P4). P4 5 D5 ______ Ke 2 g (D5 is equal to D4 times 1.02.)

d. After you have computed P4, discount it back to the present at a discount rate of 15 percent for four years.

e. Add together the answers in part b and part d to get P0, the current value of the stock. This answer represents the present value of the four periods ofdividends, plus the present value of the price of the stock after four periods (which in turn represents the value of all future dividends).

f. Use Formula 10-8 to show that it will provide approximately the same answer as part e. P0 5 D1 ______ Ke 2 g For Formula 10-8, use D1 5 \)4.08, Ke 5 15 percent, and g 5 2 percent. (The slight difference between the answers to part e and part f is due to rounding.)

g. If current EPS were equal to $4.98 and the P/E ratio is 1.2 times higher than the industry average of 6, what would the stock price be?

h. By what dollar amount is the stock price in part g different from the stock price in part f?

i. In regard to the stock price in part f, indicate which direction it would move if (1) D1 increases, (2) Ke increases, and (3) g increases

b. Would the present value of the funds in part a be enough to buy a $2,900 concert ticket?

The Clearinghouse Sweepstakes has just informed you that you have won \(1 million. The amount is to be paid out at the rate of \)20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of your winnings?

With inflation, what are the implications of using LIFO and FIFO inventory methods? How do they affect the cost of goods sold?

Why is a change in required yield for preferred stock likely to have a greater impact on price than a change in required yield for bonds?
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