Gusto Enterprises had a tough month in May, but June's sales and cash activity are looking strong. Gusto had to borrow $4,000 in May in order to maintain the company's required minimum balance of $5,000. The loan carries an annual interest rate of 6%, with monthly interest payments required. Loan withdrawals, in $1,000 increments, are assumed to be taken out on the first of the month. Loan payments, also in $1,000 increments, reduce the principal on the last day of the month. The June 1 cash balance is $5,780. With budgeted cash receipts of $105,600 and cash disbursements of $103,400 in June, how much of the prior month's loan would Gusto be able to pay off in June, if any? What is Gusto's projected ending cash balance in June? Loan paid off Projected ending cash balance $ $

Gusto Enterprises had a tough month in May, but June's sales and cash activity are looking strong. Gusto had to borrow $4,000 in May in order to maintain the company's required minimum balance of $5,000. The loan carries an annual interest rate of 6%, with monthly interest payments required. Loan withdrawals, in $1,000 increments, are assumed to be taken out on the first of the month. Loan payments, also in $1,000 increments, reduce the principal on the last day of the month. The June 1 cash balance is $5,780. With budgeted cash receipts of $105,600 and cash disbursements of $103,400 in June, how much of the prior month's loan would Gusto be able to pay off in June, if any? What is Gusto's projected ending cash balance in June? Loan paid off Projected ending cash balance $ $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Bulldogs Inc. deals with various clients throughout the city and is attempting to collect its accounts receivable more efficiently. A major bank has offered a lock-box system for Bulldogs at a cost of P180,000 per year. Bulldogs averages 300 receipts daily at an average of P5,000 each. Short-term interest is at 8% annually. What reduction in average collection time would be needed to justify the lock-box system? (Use a 360-day year)No need to type the word "Days" just the number e.g. X.XX
Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days. • Reduction in malling time = 1.5 day . Reduction in clearing time = 1.5 day • Reduction in firm processing time=1.0 day • Total = 4.0 days The following is also known: • Dally Interest on Treasury bills = 0.025% • Average number of daily payments to lockboxes - 4,000 Average size of payment = $400 A local bank has agreed to operate this lockbox system for a fee of $0.25 per check processed. What are Murkywater's average daily collections? Multiple Choice $1,000,000 O $1.200,000 O $1,400,000 O $1,600,000 $1,800,000
ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $280,100 deficit and a 40% chance for no deficit at all. The line of credit charges 0.60% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 5% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices $5,671 $5,678 $5,699 $5,684 $5,692
Brown Corporation had average days of sales outstanding of 19 days in the most recent fi scal year. Brown wants to improve its credit policies and collection practices and decrease its collection period in the next fi scal year to match the industry average of 15 days. Credit sales in the most recent fi scal year were $300 million, and Brown expects credit sales to increase to $390 million in the next fi scal year. To achieve Brown’s goal of decreasing the collection period, the change in the average accounts receivable balance that must occur is closest to: C . –$1.22 million.
The Milton Company currently purchases an average of $18,000 per day in raw materials on credit terms of "net 25." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $22,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ If Milton stretches its accounts payable an extra 5 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $
In a typical month, the Monk Corporation receives 80 checks totaling $131,000. These are delayed four days on average. What is the average daily float? Assume 30 days in a month.
Last month, Bluesky announced that it would stretch out its bill payments from 30days to 45days. The reason given was that the company wanted to “control costs and optimize cash flow”. The increased payables will be in effect for all of the company’s 4,000 suppliers. a). Why don’t all firms simply increase their payables period to shorten their cash cycles? b). Bluesky lengthened its payables period to “control costs and optimize cash flow”. Exactly what is the cash benefit to Bluesky from this change?
Bramble Enterprises had a tough month in May, but June's sales and cash activity are looking strong. Bramble had to borrow $3,000 in May in order to maintain the company's required minimum balance of $5,000. The loan carries an annual interest rate of 6%, with monthly interest payments required. Loan withdrawals, in $1,000 increments, are assumed to be taken out on the first of the month. Loan payments, also in $1,000 increments, reduce the principal on the last day of the month. The June 1 cash balance is $5,780. With budgeted cash receipts of $105,000 and cash disbursements of $102,800 in June, how much of the prior month's loan would Bramble be able to pay off in June, if any? What is Bramble's projected ending cash balance in June? Loan paid off $ 1000 Projected ending cash balance $ 6980
2
Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?
Assume you are thinking about starting a business and would like to forecast your cash needs for the next six months. You expect sales to be approximately $30,000 per month for the first 12 months and your purchases to support sales will be approximately 60% of sales. You anticipate about 20% of your sales will be cash and 80% collected the following month. Your supplier has agreed to extend credit for 70 days at no cost (i.e. you will pay your bills on a two month lag). Your monthly expenses for rent, wages, utilities, and so forth will be approximately $3,500 per month. You have deposited $15,000 in a checking account to begin your operations and would like to maintain a minimum balance of $5,000 in that account. 1. Explain the purpose of creating budgets and how your budget will help the business remain capitalized 2 . Will you need additional funds at some point? Justify your answer. 3. How would you raise capital in the future?
Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days. Reduction in mailing time = 1.5 day Reduction in clearing time = 1.5 day Reduction in firm processing time = 1.0 day Total = 4.0 days The following is also known: Daily interest on Treasury bills = 0.025% Average number of daily payments to lockboxes = 4,000 Average size of payment = $400 A local bank has agreed to operate this lockbox system for a fee of $0.25 per check processed. What are the costs associated with the proposal?