Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter.

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Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter. Paymore's cash payments to its suppliers are under the assumption that the firm pays for its goods with a 1-month delay. Therefore, on average, two-thirds of purchases are paid for in the quarter that they are purchased, and one-third are paid in the following quarter.

Paymore's customers pay their bills with a 2-month delay. Therefore, on average, one-third of sales are collected in the quarter that the sales were made, and two-thirds are collected in the following quarter.

Assuming that the sales in the last quarter of the previous year were $336, labor and administrative expenses are $65 per quarter, and interest on long-term debt is $40 per quarter.

Paymore's cash balance at the start of the first quarter is $40 and its minimum acceptable cash balance is $30. Work out the short-term financing requirements for the firm in the coming year. The firm pays no dividends. The sales forecasts for the next five quarters are as follows:

Paymore Products places orders for goods equal to 75% of


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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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