Nathan Daniel is a company that produces and retails designer accessoriles for young professionals. The company...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Nathan Daniel is a company that produces and retails designer accessoriles for young professionals. The company partners Nathan Phillips and Daniel Collins, have been best friends since they started university. Both graduated from Majesty University with a major In accounting and a minor in economics. Both found articling positions in a co-op program during their fourth year at Majesty University. After convocation, Daniel went to work for his father's accounting firm, whereas Nathan worked full-time with the firm where he had articled. After three years, they both passed their national certification exams to become certified accountants. After two more years of accounting work, the two friends decided to strike out on their own. However, Daniei and Nathan had had enough of spreadsheets, year-end deadlines, and high stress work, and decided to pursue a completely different direction: retall sales of accessories for young, metrosexual professionals. They opened a store in Calgary to sell bags, packs, briefcases, wallets, and other accessorles. They also designed some of their own merchandise and sold it under the designer label "Bones." Thanks to a great cover story in Macleans, the Bones brand became an overnight success, and orders started flooding in. That was five years ago. Today, In additlon to servicing their store in Calgary, Nathan Danlel ships merchandise to other retailers, in Alberta, British Columbla, and Ontario. Over the years, 70% of their annual sales of $3,500,000 have shifted to credit sales to other retallers, with 50% In Alberta, 30% in British Columbia, and 20% in Ontario. As credit sales have Increased, managing the cash cycle and float has become important. Most of the credit customers make payments with cheques that are malled via Canada Post. Cheques from Alberta usually arrive within one business day of posting, whereas cheques from British Columbla take two days, and those from Ontarlo take about four days to arrive at the Calgary office. When each cheque arrives at the office, Naomi Mitchell, the office manager takes the cheques out of their envelopes, records them, and puts them aside for deposit at the end of business day. It usually takes about three days for the company's bank, Bank of Mount Royal to process and clear the cheques, and deposit the money in the company's account. In terms of Its accounts payable, the company malls its cheques out to its supplers, all of whom are located in Alberta. The costs of goods sold amounts to approximately 75% of total sales revenue. On average, It takes about one day for suppliers to take their cheques to their banks for deposit, and It takes another three days for their banks to process and clear the cheques. In the last operating year, the company started the year with payables of $130,000 and ended it with $110,000. Beginning recelvables were $175,000, and ending recelvables amounted to $145,000; beginning inventory was $80,000, and ending inventory was $120,000; and beginning cash reserves were $20,000, and ending cash reserves were $15,000. Two years ago, Nathan Daniel borrowed $550,000 from the bank at an Interest rate of 15% to expand Its production and retall facilities. In addition to paying the Interest on this loan, they are also repaying 10% of the orliginal principal each year (1.e., it will take another eight years to pay off this loan). At its most recent year-end, the company owned $650,000 in net fixed assets, and Daniel and Nathan had $200,000 in equity in the company. The company uses a line of credit (up to a maximum of $200,000) with its bank to cover shortfalls in its cash-on-hand. The interest on this line of credit is 2% per month. The manager of the Bank of Mount Royal just phoned Daniel and offered the company same-day deposit for their cheques; this will reduce their availability float to one business day. The fee for this service will be $3,000 per year. Nathan and Daniel must decide whether this is a good deal or not. At the end of the business week, the partners ordered a large pizza and went to Nathan's place to hash out their declslon. They came up with the following list of questions: What are the company's Inventory perlod, recelvables period, and payables perlod? (Round all perlods to the nearest integer.) 1. (11 marks) 2. What are the company's operating and cash cycles? (4 marks) 3. How do the company's operating and cash cycles compare to the Industry average of 30 and 20 days, respectively? (6 marks) 4. If the company's customers' average cash cycle and operating cycle are 30 and 40 days, respectively, what can we say about the company's credit management policy of net 30? (6 marks) What is the company's average dally collection float? What is its average dally disbursement float? (Use the average mall float to calculate the collection delay, use the average dally cost of goods sold to calculate the average dally disbursement float, and use the average dally credit sales to calculate the average dally collection (15 marks) 5. float. What is the company's net float? 6. (2 marks) What is the effective annual interest rate on the company's line of credit? What is the annual short-term interest expense based on this effective annual rate? Assume that the ending short-term borrowing amount is the average short-term borrowing amount. This average amount can then be multipliled with the effective annual Interest rate to obtain the short-term interest expense. Note that you will need to construct the Statement of Financial Position to find the ending short-term borrowing (20 marks) 7. amount. 8. What will be the net float if Nathan Daniel takes up the Bank of Mount Royal's offer for same-day deposit of their cheques? (10 marks) 9. How much additional cash will be made avallable if the company takes up the Bank of Mount Royal's offer for same-day deposit of their cheques? (Assume that on average, sales will remaln at $3,500,000 each year.) (10 marks) How much does the company have to borrow from Its bank to cover net float if they accept the bank's same-day deposit offer? 10. (5 marks) 11. Should the partners accept the same-day deposit offer from Its bank? (11 marks) Nathan Daniel is a company that produces and retails designer accessoriles for young professionals. The company partners Nathan Phillips and Daniel Collins, have been best friends since they started university. Both graduated from Majesty University with a major In accounting and a minor in economics. Both found articling positions in a co-op program during their fourth year at Majesty University. After convocation, Daniel went to work for his father's accounting firm, whereas Nathan worked full-time with the firm where he had articled. After three years, they both passed their national certification exams to become certified accountants. After two more years of accounting work, the two friends decided to strike out on their own. However, Daniei and Nathan had had enough of spreadsheets, year-end deadlines, and high stress work, and decided to pursue a completely different direction: retall sales of accessories for young, metrosexual professionals. They opened a store in Calgary to sell bags, packs, briefcases, wallets, and other accessorles. They also designed some of their own merchandise and sold it under the designer label "Bones." Thanks to a great cover story in Macleans, the Bones brand became an overnight success, and orders started flooding in. That was five years ago. Today, In additlon to servicing their store in Calgary, Nathan Danlel ships merchandise to other retailers, in Alberta, British Columbla, and Ontario. Over the years, 70% of their annual sales of $3,500,000 have shifted to credit sales to other retallers, with 50% In Alberta, 30% in British Columbia, and 20% in Ontario. As credit sales have Increased, managing the cash cycle and float has become important. Most of the credit customers make payments with cheques that are malled via Canada Post. Cheques from Alberta usually arrive within one business day of posting, whereas cheques from British Columbla take two days, and those from Ontarlo take about four days to arrive at the Calgary office. When each cheque arrives at the office, Naomi Mitchell, the office manager takes the cheques out of their envelopes, records them, and puts them aside for deposit at the end of business day. It usually takes about three days for the company's bank, Bank of Mount Royal to process and clear the cheques, and deposit the money in the company's account. In terms of Its accounts payable, the company malls its cheques out to its supplers, all of whom are located in Alberta. The costs of goods sold amounts to approximately 75% of total sales revenue. On average, It takes about one day for suppliers to take their cheques to their banks for deposit, and It takes another three days for their banks to process and clear the cheques. In the last operating year, the company started the year with payables of $130,000 and ended it with $110,000. Beginning recelvables were $175,000, and ending recelvables amounted to $145,000; beginning inventory was $80,000, and ending inventory was $120,000; and beginning cash reserves were $20,000, and ending cash reserves were $15,000. Two years ago, Nathan Daniel borrowed $550,000 from the bank at an Interest rate of 15% to expand Its production and retall facilities. In addition to paying the Interest on this loan, they are also repaying 10% of the orliginal principal each year (1.e., it will take another eight years to pay off this loan). At its most recent year-end, the company owned $650,000 in net fixed assets, and Daniel and Nathan had $200,000 in equity in the company. The company uses a line of credit (up to a maximum of $200,000) with its bank to cover shortfalls in its cash-on-hand. The interest on this line of credit is 2% per month. The manager of the Bank of Mount Royal just phoned Daniel and offered the company same-day deposit for their cheques; this will reduce their availability float to one business day. The fee for this service will be $3,000 per year. Nathan and Daniel must decide whether this is a good deal or not. At the end of the business week, the partners ordered a large pizza and went to Nathan's place to hash out their declslon. They came up with the following list of questions: What are the company's Inventory perlod, recelvables period, and payables perlod? (Round all perlods to the nearest integer.) 1. (11 marks) 2. What are the company's operating and cash cycles? (4 marks) 3. How do the company's operating and cash cycles compare to the Industry average of 30 and 20 days, respectively? (6 marks) 4. If the company's customers' average cash cycle and operating cycle are 30 and 40 days, respectively, what can we say about the company's credit management policy of net 30? (6 marks) What is the company's average dally collection float? What is its average dally disbursement float? (Use the average mall float to calculate the collection delay, use the average dally cost of goods sold to calculate the average dally disbursement float, and use the average dally credit sales to calculate the average dally collection (15 marks) 5. float. What is the company's net float? 6. (2 marks) What is the effective annual interest rate on the company's line of credit? What is the annual short-term interest expense based on this effective annual rate? Assume that the ending short-term borrowing amount is the average short-term borrowing amount. This average amount can then be multipliled with the effective annual Interest rate to obtain the short-term interest expense. Note that you will need to construct the Statement of Financial Position to find the ending short-term borrowing (20 marks) 7. amount. 8. What will be the net float if Nathan Daniel takes up the Bank of Mount Royal's offer for same-day deposit of their cheques? (10 marks) 9. How much additional cash will be made avallable if the company takes up the Bank of Mount Royal's offer for same-day deposit of their cheques? (Assume that on average, sales will remaln at $3,500,000 each year.) (10 marks) How much does the company have to borrow from Its bank to cover net float if they accept the bank's same-day deposit offer? 10. (5 marks) 11. Should the partners accept the same-day deposit offer from Its bank? (11 marks)
Expert Answer:
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
Posted Date:
Students also viewed these accounting questions
-
A couple in Ruston, Louisiana, must decide whether it is more economical to buy a home or to continue to rent during an inflationary period. Presently the couple rents a one-bedroom duplex for $450 a...
-
The manager of Shakey Bank sends a $2 million funds transfer payment message via CHIPS to the Trust Bank at 10 AM. Trust Bank sends a $2 million funds transfer message via CHIPS to Hope Bank later...
-
If we know that then what can we say about lim az = 1, k- k=1
-
The 2019 catalog that Gigantic State University (GSU) sent to prospective students described a merit-based scholarship called the Eagle Scholarship. The catalog stated that GSU offers the Eagle...
-
Three beakers contain clear, colorless liquids. One beaker contains pure water, another contains salt water, and another contains sugar water. How can you tell which beaker is which? (No tasting...
-
According to the Nuclear Energy Institute (NEI), there were 62 nuclear power plants operating in the United States in 2015. The table at top of the next column lists the 30 states that operate...
-
In the decision-making process, what are the ways in which context can impact outcomes?
-
The manager at a water park constructed the following frequency distribution to summarize attendance in July andAugust. Attendance ..... Frequency 1,000 up to 1,250 .... 5 1,250 up to 1,500 .... 6...
-
4) Consider the Markov chain that has the following (one-step) transition matrix. 0 1 2 3 4 5 0 % 0 0 0 0 1 % 0 0 0 0 P= 2 0 0 3 0 0 0 % 0 4 0 0 0 % 0 5 0 0 0 0 0 1 (a) How many classes are there in...
-
Alex was in his friend Allison's home drinking straight vodka and doing drugs. Alex told Allison that he has not taken his prescribed mental health medications for two weeks. This did not concern...
-
Which of the following is the major organic product of the reaction below? OTs OH excess NaN, Na Na OH D.
-
Julia Smith has been the partner in charge of the audit of the clothing manufacturer, Euphoric Colours Pty Ltd (Will be referred to as Euphoric throughout the rest of the question). Her audit firm...
-
You have just recently hired as an information technology loss prevention officer , select one (1) of the five trends that you will use to strengthen security through the use technology and state why...
-
Do you feel that you meet the requirements of communication competence that your text suggests, such as having cognitive complexity, empathy, and you highly self monitor your communication? Please...
-
According to the Privacy Act 1988 and the Information Privacy Principles (IPPs), a person is entitled to have personal information protected. Explain how the legislation and IPPs apply to the...
-
Discuss and explain why a company may choose to raise capital by issuing bonds instead of issuing stock.
-
A block of mass m = 0.59 kg attached to a spring with force constant 134 N/m is free to move on a frictionless, horizontal surface as in the figure below. The block is released from rest after the...
-
You are standing at x = 9.0 km and your assistant is standing at x = 3.0 km. Lightning bolt 1 strikes at x = 0 km and lightning bolt 2 strikes at x = 12.0 km. You see the flash from bolt 2 at t = 10...
-
Why are FIs consistently interested in the expected level of economic activity in the markets in which they operate? Why is monetary policy of the Federal Reserve System important to FIs?
-
Consider these four types of risks: credit, foreign exchange, market, and sovereign. These risks can be separated into two pairs of risk types in which each pair consists of two related risk types,...
-
Carman County Bank (CCB) has a $5 million face value outstanding adjustable-rate loan to a company that has a leverage ratio of 80 percent. The current risk-free rate is 6 percent and the time to...
-
In the research on leader behaviors, which style of leadership describes the preferred high-high combination? (a) transformational (b) transactional (c) laissez-faire (d) democratic
-
When managers use offers of rewards and threats of punishments to try to get others to do what they want them to do, they are using which type of power? (a) formal authority (b) position (c) referent...
-
In terms of leadership behaviors, someone who focuses on doing a very good job of planning work tasks, setting performance standards, and monitoring results would be described as _________. (a) task...
Study smarter with the SolutionInn App