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Chapter 3: 8DQ (page 219)
What are the 5 Cs of credit that are sometimes used by bankers and others to determine whether a potential loan will be repaid?
The five C’s of credit are character, capital, capacity, conditions, and collateral.
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What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
a. Fill in column (4) for each month.
Age of receivables April 30 20X1 | |||
1 | 2 | 3 | 4 |
Month of sales | Age of accounts | Amounts | Percent of amount due |
April | 0-30 | \(131,250 | ____ |
March | 31-60 | \)93,750 | ____ |
February | 61-90 | \(112,500 | ____ |
January | 91-120 | \)37,500 | ____ |
Total receivables | $375,000 | 100% |
Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.
b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?
Esquire Products Inc. expects the following monthly sales:
January | \(28,000 |
February | \)19,000 |
March | \(12,000 |
April | \)14,000 |
May | \(8,000 |
June | \)6,000 |
July | \(22,000 |
August | \)26,000 |
September | \(29,000 |
October | \)34,000 |
November | \(42,000 |
December | \)24,000 |
Total annual sales | \(264,000 |
Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.
c. Determine a cash payments schedule for January through December. The production costs (\)1 per unit produced) are paid for in the month in which they occur. Other cash payments (besides those for production costs) are $7,400 per month.
Orbital Communications has operating plants in over 100 countries. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 150,000 kronas in Norway worth \(40,000. The funds drew 13 percent interest, and the krona increased 6 percent against the dollar. What is the value of the holdings, based on U.S. dollars, at year-end?
(Hint: Multiply \)40,000 times 1.13 and then multiply the resulting value by 106 percent.)
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