No. 3 Changes in Operating Cycle
Effects of the following on operating cycle
No. 11 Cash budget
Given the following
|Wages, taxes, expenses||54340||70,300||75,170|
Credit sales projected = 5% will never be collected, 35% will be collected, 60% collected the following month. Credit sales to be paid the following month;
Credit sales = $235,000 March, 2015
Credit purchases = $161,300, March, 2015
|Sales collected= 0.35 x current month sales + 0.60 x previous month sales.|
|Beginning cash balance||$ 112,000.00||$ 67,020.00||$ 47,205.00|
|Cash collections from credit sales||272,040.00||346,965.00||356,875.00|
|Total cash available||$ 384,040.00||$ 413,985.00||$ 404,080.00|
|Purchases||$ 161,300.00||$ 148,900.00||$ 169,300.00|
|Wages, taxes, and expenses||54,340.00||70,300.00||75,170.00|
|Total cash disbursements||$ 317,020.00||$ 366,780.00||$ 257,050.00|
|Ending cash balance||$ 67,020.00||$ 47,205.00||$ 147,030.00|
Calculating average collection period:
Average collection period = Net Credit term + overdue period
= 30 + 4 days
= 34 days
Receivable turnover (RT) = (365 days/avg. collection period)
= 365 / 34 = 10.74
Average accounts receivable (AAR) = (annual credit sales/receivable turnover)
= $9.75 million / 10.74
= $ 0.908218 million
No. 4 Using spot and forward exchange rates
[LO1] Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.11.
Given spot rate = $1.09
Forward rate = $1.11
USD with CADforward price = CAD$1/(spot price of CAD $/US $1)
= CAD $1 / ($1.09/$1)
= $0.9174 indicating that the US dollar is worthier
Spot rate = $1.09
Forward rate = $1.11
Cost of Canadian dollar in US = value of beer in Canada/ (spot price of Canadian dollar/US dollar)
= C$2.50 / (C$1.09/$1)
Given the fact that the rate of country’s dollar is CAD$1.11 and its spot rate is CAD$1.09 – it shows that the forward markets the US dollar is more expensive than in the spot markets. Consequently, this indicates that the US dollar is trading at a premium when compared to the Canadian dollar. Such an aspect translates to the idea that the value of Canadian dollar is less that of the US dollar.
The dollar is expected to appreciate in a future date given the fact that the forward rate for the Canadian dollar is less than its spot rate. Also, the dollar is trading at a premium from the fact that it is cheaper in the spot markets. Therefore, considering this disparity, the dollar is expected to appreciate in the spot markets.
e. Which country do you think has higher interest rates—the United States or Canada? Explain.
Interest rates make the value of a currency to shoot or increase and such a phenomenon induces reduced flow of money in the markets. In this case, the US dollar is more valuable than the Canadian Dollar and this is a good indicator that the US interest rates are higher than those in Canadian markets.
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