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1、Chapter 7Problems1.City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers. The collection time has been reduced by two days and disbursement time increased by one day because ofthese policies. E
2、xcess funds are being invested in short-term instruments yielding 12percent per annum.a.If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up?b.How much can City Farm earn in dollars per year on short-term
3、 investments made possible by the freed-up cash?7-1.Solution:City Farm Insurancea.$5,000,000 daily collections 2.0 days speed up =$10,000,000 additional collections $3,000,000 daily disbursements 1.0 days slow down = $ 3,000,000 delayed disbursements $13,000,000 freed-up fundsb.2.Nicholas Birdcage C
4、ompany of Hollywood ships cages throughout the country. Nicholas has determined that through the establishment of local collection centers around the country, he can speed up the collection of payments by one and one-half days. Furthermore, the cash management department of his bank has indicated to
5、 him that he can defer his payments on his accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.a.If the company has $4 million per day in collections and $2 million per day in disbursements, how many dollars will the cash management system free
6、up?b.If the company can earn 9 percent per annum on freed-up funds, how much will the income be?c.If the annual cost of the new system is $700,000, should it be implemented?7-2.Solution:Nicholas Birdcage Company of Hollywooda.$4,000,000 daily collections 1.5 days speed up = $6,000,000 additional col
7、lections$2,000,000 daily disbursements .5 days slow down = $1,000,000 delayed disbursements$7,000,000 freed-up fundsb.c.No. The annual income of $630,000 is $70,000 less than the annual cost of $700,000 for the new system.3.Megahurtz International Car Rentals has rent-a-car outlets throughout the wo
8、rld. It also keeps funds for transactions purposes in many foreign countries. Assume in 2003, it held 100,000 reals in Brazil worth 35,000 dollars. It drew 12 percent interest, but the Brazilian real declined 20 percent against the dollar.a.What is the value of its holdings, based on U.S. dollars, a
9、t year-end (Hint: multiply $35,000 times 1.12 and then multiply the resulting value by 80 percent.)b.What is the value of its holdings, based on U.S. dollars, at year-end if it drew 9percent interest and the real went up by 10 percent against the dollar?7-3.Solution:Megahurtz International Car Renta
10、la.$35,000 1.12= $39,200$39,200 80%= $31,360 dollar value of real holdingsb.$35,000 1.09= $38,150$38,150 110%= $41,965 dollar value of real holdings4.Thompson Wood Products has credit sales of $2,160,000 and accounts receivable of$288,000. Compute the value of the average collection period.7-4.Solut
11、ion:Thompson Wood Products5.Lone Star Petroleum Co. has annual credit sales of $2,880,000 and accounts receivable of$272,000. Compute the value of the average collection period.7-5.Solution:Lone Star Petroleum Co.6.Knight Roundtable Co. has annual credit sales of $1,080,000 and an average collection
12、 period of 32 days in 2008. Assume a 360-day year. What is the companys average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.7-6.Solution:Knight Roundtable Co.7.Darlas Cosmetics has annual credit sales of $1,440,000
13、and an average collection period of 45 days in 2008. Assume a 360-day year.What is the companys average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.7-7.Solution:Darlas Cosmetic Company$1,440,000 annual credit sales/
14、360 = $4,000 per day credit sales$4,000 credit sales 45 average collection period = $180,000 average accounts receivable balance8.In Problem 7, if accounts receivable change to $200,000 in the year 2009, while credit sales are $1,800,000, should we assume the firm has a more or a less lenient credit
15、 policy?7-8.Solution:Darlas Cosmetics (Continued)To determine if there is a more lenient credit policy, compute the average collection period.Since the firm has a shorter average collection period, it appears that the firm does not have a more lenient credit policy.9.Hubbell Electronic Wiring Company has an average collection period of 35 days. The accounts receivable balance is $105,000. What is the value of its credit sales?7-9.Solution:Hubbell Electronic Wiring Company10.Marvs Womens Wear has the following schedule for aging of accounts receivable.Age
