a) Explain the significance of financing with accounts payable. b) Explain (including computations) the rationale of taking a cash discount, such as 2/15, n/40. c) Additionally, determine the approximate balance of accounts payable, if a company stretches its payables to 60 days and on average, they make purchases of $1,000,000 per day from their vendors. d) Explain what the stretching accomplishes if the vendors should be paid in 40 days
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- Alice’s second initiative calls for Fresh & Fruity to obtain a bank loan of a sufficient size to enable the company to take all suppliers’ discounts. What is the minimum size of this loan? (Hint: To take all suppliers’ discounts, the average payment period must be 10 days, and net purchases will be purchases – (Purchases from Figure 1 x .02). Assume that all this happens, and solve the following formula for the new accounts payable balance, using: Accounts payable = Average payment period x Purchase per day* *Based on net purchases/360. Now compare the accounts payable you just solved with the new accounts payable balance you found in question 3. The difference is the size of the loan that is required. Assume that Fresh &Fruity does obtain an 8 percent loan for one year in the amount you solved in question 5, and it reduces its accounts payable balance accordingly. Now the company is taking 2 percent discounts on all purchases and paying 8 percent a year on the loan…Explain the trade credit facility provided by some companies to their customers that allow them to manage their day-to-day liquidity situation and calculate the opportunity cost of an invoice that specifies the following conditions, as shown below (a. – c.):a) conditions: 1.25/10, n/30.b) conditions: 1.25/10, n/60.c) conditions: 1.5/10, n/60.1) Use the stated collection policy of an entity to determine the expected monthly collections for trade receivables 2) Given the collection policy of suppliers, compute the expected cash disbursements for accounts payable 3) Given an expected set of transactions for an entity, develop a monthly cash budget (with a total column) for the entity, clearly showing the cash receipts and cash payments and the minimum cash balance before financing. 4) Use the collection/payment policy to determine the balances to be reflected in the balance sheet as expected trade receivables and payables at a given date. 5) State and explain internal measures that can be implemented to increase cash balance Please assist with question (b) showing workings as well
- 1) Use the stated collection policy of an entity to determine the expected monthly collections for trade receivables 2) Given the collection policy of suppliers, compute the expected cash disbursements for accounts payable 3) Given an expected set of transactions for an entity, develop a monthly cash budget (with a total column) for the entity, clearly showing the cash receipts and cash payments and the minimum cash balance before financing. 4) Use the collection/payment policy to determine the balances to be reflected in the balance sheet as expected trade receivables and payables at a given date. 5) State and explain internal measures that can be implemented to increase cash balance Please assist with question (a) showing workings as well"We have a contract with our partner bank that they pay us a monthly rebate that is calculated as a portion of the total interchange revenue they receive for each transaction that is run through our platform. As part of our contract/application with our customers we offer cash back rewards that is calculated as a percentage of the revenue that we receive from the bank for each of their transactions."Q: How should the cash back rewards payment to customers be represented on our income statement?2.-When deciding to accept a cash discount from a supplier, on what day is it advisable to take the financing? A) On the last day of the discount period, to see if they are able to meet the discount. B) On the first day of the discount period, so why wait? C) On any day of the discount period D) In the middle of the discount period, so there is no risk.
- "We have a contract with our partner bank that they pay us a monthly rebate that is calculated as a portion of the total interchange revenue they receive for each transaction that is run through our platform. As part of our contract/application with our customers we offer cash back rewards that is calculated as a percentage of the revenue that we receive from the bank for each of their transactions."Q: What guidance supports that decision?A firm is offered credit terms of 2/10 net 45 by most of its suppliers. The firm also has a credit line available at a local bank at an interest rate of 12 percent. What is the cost of giving up the cash discount? Should the company take the cash discount or finance the purchase with the line of credit?This module discusses discounts given out to customers based on payment terms, such as 2/10, n/30. : What would the credit terms 3/15, n/45 stand for? Explain why it is important for a company to keep track of how much money in discounts is given out? What account is used to track discounts? From a business owner's point of view, what are the advantages of allowing discounts? From a business owner's point of view, what are the disadvantages of allowing discounts?
- Discuss Followings: (a) Discuss a total of four (4) factors that are relevant in determining how much cash a business should hold. (b) Discuss the correct interpretation of the operating cash cycle (OCC), whether businesses should try to increase or decrease the OCC, and why. (c) A supplier of electronic components is offering credit terms whereby buyers have a maximum period of 68 days in which to pay for purchases. However, if customers pay within 15 days they receive a 5% discount on the invoice amount. Calculate the exact interest rate implied by the credit terms.In constructing a pro forma balance sheet a manager can estimate the accounts receivable because: Select one: a. managers typically construct a pro forma income statement prior to the balance sheet. Thus, an estimate of sales has already been made and this is critical to estimating accounts receivable. O b. if the firm has already made an estimate of expected sales, then it can also estimate average daily sales. O c. if the firm maintains similar credit standards it can use the historical average age of accounts receivable to help estimate the anticipated average age of accounts receivable O d. if the firm has each piece of information as stated in the three choices above THEN they can estimate accounts receivable for the pro forma balance sheet..An FI has estimated the following annual costs for its demand deposits: management cost per account = $150, average account size = $1600, average number of cheques processed per account per month = 75, cost of clearing a cheque = $0.10, fees charged to customer per cheque = $0.05, and average fee charged per customer per month = $15. (a) What is the implicit interest cost of demand deposits for the FI? (b) If the FI has to keep an average of 8 per cent of demand deposits as required reserves with the RBA paying no interest, what is the implicit interest cost of demand deposits for the FI? (c) What should be the per-cheque fee charged to customers to reduce the implicit interest costs to 3 per cent? Ignore the reserve requirements.