Problem 19-10 Forecasting Net Cash Flow (LO2) Paymore Products places orders for
ID: 2797941 • Letter: P
Question
Problem 19-10 Forecasting Net Cash Flow (LO2) Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below table. Quarter in Coming Year Followin Year First $390 SecondThird Fourth 354 Quarter $402 Sales forecast $378 $402 On average, one-third of sales are collected in the quarter that they are sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $354. Also, one third of the orders are paid for in the current month and then two thirds of the next quarters orders are paid in advance. Assuming that Paymore's labor and administrative expenses are $83 per quarter and that interest on long-term debt is $58 per quarter, work out the net cash inflow for Paymore for the coming year using the below table. Quarter First Second ThirdFourth Sources of cash: Collections on accounts receivable Uses of cash: Payments of accounts payable Labor and administrative expenses Interest on long-term debt Total uses of cash $ 0's Net cash inflow (equals sources minus uses) -Explanation / Answer
First Second Third Fourth Sales 390 378 370 402 1 Sources of Cash 2 Collections on AR 2/3* 354+ 1/3*390 =366 2/3*390 + 1/3*378 = 386 2/3*378 + 1/3* 354 = 370 2/3*354 + 1/3 * 402 = 370 Uses of Cash 3 Orders Placed 0.75 * 390 = 292.5 0.75 * 378 = 283.5 0.75 * 354 = 265.5 0.75 * 402 = 301.5 4 Payments of AP 1/3*292.5 + 2/3*283.5 = 286.5 = 1/3*283.5 + 2/3*265.5 = 271.5 = 1/3*265.5 + 2/3*301.5 = 289.5 1/3* 301.5 + 2/3 * 301.5=301.5 5 Lbor and admin expense 83 83 83 83 6 Interest expense 58 58 58 58 7 Total uses of cash 427.5 412.5 430.5 442.5 8 Net Cash Inflow -61.5 -26.5 -60.5 -72.5