Problem 1 - Depreciation

Plastic Container, Inc. purchased several machines at a total cost of $600,000. The installation cost for this equipment was $50,000. The firm plans to depreciate the equipment using the MACRS 5-year normal recovery period. Prepare a depreciation schedule showing the depreciation expense for each year.

Problem 2 - Cash Budget

Bell Ball Bearings, Inc. has provided you with the following information for the preparation of a quarterly cash budget for January, February, and March. Prepare a cash budget for these months. Your goal is to determine if the company will require financing or have excess funds for this period.

Month Sales

November $2,000,000

December 2,500,000

January 2,500,000

February 3,000,000

March 3,500,000

April 3,000,000

The firm collects 50 percent of sales for cash, 30 percent of sales are collected one month later, and 20 percent of sales are collected two months later.

Interest income of $25,000 on marketable securities will be received in March.

The firm pays cash for all its purchases in 30 days. Purchases equal 75 percent of the following month's projected sales.

Salaries and wages amount to 8 percent of the previous month's sales.

Rent payments of $40,000 are due each month.

The firm plans to purchase a new diesel truck costing $120,000 in February.

The firm plans to pay a quarterly dividend, totaling $30,000 in March.

The firm plans to pay off a loan of $100,000 from the bank in January.

The firm has a beginning cash balance of $75,000 in January and maintains a minimum cash balance of $50,000.

Problem 3 - Cash Conversion Cycle

Cast Away Fishing Products is analyzing the performance of its cash management. On average, the firm holds inventory 65 days, pays its suppliers in 35 days, and collects its receivables in 15 days. The firm has a current annual outlay of $1,960,000 on operating cycle investments. They currently pay 10 percent for financing. (Assume a 365 day year.)

(a) Calculate the firm's cash conversion cycle.

(b) Calculate the firm's operating cycle.

(c) Calculate the daily expenditure and the firm's annual savings if the operating cycle is reduced by 15 days.

Problem 4 Cash Discount

Go For Broke Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, would be ________. If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating, the cost of giving up the cash discount would only be ________.