Problem 1) Renfro Industries balance sheet for December 31, 2010 is as follows:
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Assets ($000)
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Liabilities and Equity ($000)
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Cash
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$8,000
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Accounts Payable
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$36,000
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Marketable Securities
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4,000
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Notes Payable
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12,000
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Accounts Receivable
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60,000
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Other Current Liabilities
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32,000
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Inventories
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100,000
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Long-term debt
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80,000
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Plant & Equip.
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220,000
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Preferred Stock
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48,000
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Less: Deprec.
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64,000
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Common Stock
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20,000
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Net Plant & Equip.
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156,000
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Paid-in Surplus
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40,000
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|
|
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Retained Earnings
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60,000
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Total Assets
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$328,000
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Total Claims
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$328,000
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Required: What is Renfro’s net working capital at the end of 2010?
Problem 2) Great Skot expects to have cash receipts in June of $532,160. Skot’s cash disbursements in June are $581,720, including an interest payment on a bond issue of $32,000. If Skot wishes to maintain a cash balance of $40,000, how much will Skot have to borrow if it started the month with a cash balance of $52,000?
Problem 3) Bluegrass Distilleries, Inc., refuses to extend credit to any wholesale distributors who have a history of being delinquent in repaying credit extended to them. This policy results in lost sales of $10 million annually. Based on past experience with these types of customers, the firm estimates that the average collection period would be 90 days, and that the bad-debt loss ratio would be 6 percent. The firm’s variable cost ratio is 0.80, making its profit contribution ratio 0.20. Bluegrass Distilleries required pretax return (i.e., opportunity cost) on receivables investments is 20 percent. When converting from annual to daily data or vice versa, assume there are 365 days per year. If Bluegrass extends full credit to these (previously delinquent) customers, determine the total increase in credit-related costs.