HW III

Due on September 3 at 6:00 p.m.

You should show your work for every question.
Quarter in Coming Year Following Year

First Second Third Fourth First

Sales forecast 252 272 222 294 315

1)Kola Company places orders for goods equal to 60% of its sales forecast for the next quarter.
What will orders be in each quarter of the coming year if the sales in the current quarter are
expected to be $270 and the sales forecasts for the next five quarters are as follows?
2)Kola Company pays for one-thirds of the purchases immediately and pays for the remaining
purchases in the next quarter. Calculate Kola Company’s sum of its cash payments in the
coming year if the current quarter are expected to be $270.
3) Kola Company’s customers pay their bills with a two-month delay. What are the expected
cash receipts from sales in the coming year if the current quarter are expected to be $270?
4) Now suppose that Kola Company's other quarterly expenses total $95. Calculate the expected
quarterly net cash flow for the upcoming year. What would the current beginning cash balance
need to be so that the cash balance at the end of the following year is zero?
5) Assume that the beginning cash balance of Kola Company is $368 and that the acceptable
minimum balance is $25. Determine the amount of short-term financing required for the
upcoming year, which is equal to the total amount of cash required for each quarter. Then,
choose the least expensive financing option presented below.
The loan is up to $160 million with a monthly interest rate of 0.8%. Along with the interest
payment, 10% of the loan amount should be deposited into a checking account immediately.
If the company issues commercial paper, it must pay $150 million at maturity. The papers have
a total market value of $129.8 million. There are seventeen months until maturity. The
commission rate is 0.5%.
What will the balance be at the end of each quarter of the following year if debt capital is raised
immediately and not repaid in the following year?