PROCESS POINT (FINANCIAL PLANNING)

Exercise 1:
For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods
Sold of $525,000.
At the beginning of the year its Accounts Receivable were $80,000, its Accounts Payable
were $125,000 and its Inventory was $100,000.
At the end of the year its Accounts Receivable were $86,000, its Accounts Payable were
$105,000 and its Inventory was $110,000. Calculate Average payment period.
Calculate cash cycle operations.
Exercise 2:
Most of Dynamic’s cash flow inflow comes from the sale of mattresses. We therefore start
with a sales forecast by quarter for 2014:

First Second Third Fourth

Quarter Quarter Quarter Quarter
Receivables at start of period
($ millions) 130
Sales ($ millions) 520 606 785 834
We assume that sales in the last quarter of the previous year were $ 450 millions.
Sales become accounts receivable before they become cash. Cash flow comes from
collections on account receivable. Suppose that 60% of sales are cashed in in the immediate
quarter and 40% are cashed in the folowing quarter.
Calculate receivables at the end of period in 2014.