F-405 1st Mid-Term

Math Questions and Possible Variants

1. A company has the following current assets and current liabilities:

Cash: $50,000, Accounts Receivable: $80,000, Inventory: $120,000, Short-term Investments: $30,000, Accounts
Payables: $70,000, Notes Payables: $f0,000

 What is the Gross Working Capital? Answer: $280,000

 What is the Net Working Capital? Answer: $200,000
2. A firm has:

Current Assets = $600,000, Current Liabilities = $400,000, Short-term Interest-Bearing Debt = $100,000. What is the
Net Operating Working Capital (NOWC)? Answer: $300,000

3. A firm has:

Current Assets = $600,000, Non-interest charging operating liabilities = $300,000. What is the Net Operating Working
Capital (NOWC)? Answer: $300,000

4. A firm has:

Current Assets = $600,000, Current Liabilities Excluding Short term interest rate = $300,000. What is the Net Operating
Working Capital (NOWC)? Answer: $300,000

5. Consider the following information:

Last Year's Sales $1,000,000

Cost of Sales $900,000

Item Old New

Assets
Cash $15,000 $5,000
Accounts Receivable $50,000 $60,000
Inventory $75,000 $75,000
Total Current Assets $140,000 $140,000
Net Fixed Assets $150,000 $150,000
Total Assets $290,000 $290,000

Liabilities & Equity

Accounts Payable $110,000 $110,000
Accrued Wages $60,000 $60,000
Total Current Liabilities $170,000 $170,000
Equity $120,000 $120,000
Total Liabilities & Equity $290,000 $290,000

a) Determine the Cash Conversion Cycle of the Old Situation. Answer: 68

b) Determine the Comprehensive Liquidity Index (CLI) Old Situation. Answer: 0.84
6. Suppose, a company has sales of 25,00,000 in 2022 of which 90% is on credit. The COGS is 60% of the sales.

Item 2021 2022

Assets
 Cash 50,000 75,000
Accounts Receivable 250,000 300,000
Inventory 150,000 120,000
Prepaid Expenses 45,000 15,000
Total Current Assets 495,000 510,000

Liabilities & Equity

Accounts Payable 50,000 55,000
Accrued Wages 100,000 45,000
Total Current Liabilities 150,000 100,000

a) Calculate the operating cycle and cash conversion cycle for 2022. Answer: 46.4  47 Days
b) Interpret the CCC value and comment on the liquidity level of the firm.
7. Consider the following information
Projected Income Statement
Year Ending 12/31/2025

Item Amount
Sales $3,000
Cost of Sales:
Materials $1,000
Labor $1,500
Depreciation $100
Interest Expense $90
Earnings Before Taxes $310
Taxes $109
Earnings After Taxes $201
Projected Balance Sheet

Year Ending 12/31/2025

Assets Amount Liabilities & Equity Amount

Cash $100 Accounts Payable (Materials) $200
Marketable Securities $300 Accrued Labor $400
Accounts Receivable $500 Notes Payable $600
Inventory $700 Total Current Debt $1,200
Total Current Assets $1,600 Long-Term Debt $200
Fixed Assets $500 Equity $700
Total Assets $2,100 Total Liabilities & Equity $2,100
The average maturity of marketable securities is 90 days. The maturity of all notes payable is 120 days. Ignore the
effects of any maturing of long-term debt. With this structure, the firm will have $100 in available borrowing remaining
on its credit line. Use a 360-day year.

a) Determine the Cash Conversion Cycle of 2025. Answer: 74.4 Days  75 Days
b) Determine the Comprehensive Liquidity Index (CLI) of 2025. Answer: 1.3230489
c) Determine the Liquidity Balance of 2025. Answer: 400
d) Determine the Net Liquidity Balance of 2025. Answer: = -0.095230  - 0.095
8. Determine the desired balance sheet according to the given information:
 i) The firm has assessed its asset position based on shareholder wealth maximization and determined that its
desired level of assets is $270 million; An additional investment of $10 million is also required for accounts
receivable, as the firm has decided that it would be in the shareholders' interest to lengthen the terms of the
sale.
ii) The firm determined that the desired debt-to-assets ratio is 0.60.
iii) The firm has used the current ratio as its measure of aggregate liquidity and has decided that its preferred
aggregate liquidity position involves a current ratio of 2.00
iv) The firm would then compare these desired positions in its assets and liabilities with its planned positions
and make cost-effective changes to move toward its desired future financial structure
v) A/P will be increased by 5000 (thousand dollars);
vi) The Current portion of current liabilities will be paid; and
vii) Long-term liability is to be increased by 2000 (thousand dollars),
viii) Accrued Wages will remain the same.
9. A proforma cost sheet of a company provides the following particulars: Particulars Amount per unit Elements of
cost:
Raw materials Rs 80
Direct labour Rs 30
Overhead Rs 60
Total cost Rs 170
Profit Rs 30
Selling price Rs 200 T
he following further particulars are available:
i) Raw materials in stock, on average, one month; Materials in process (completion stage, 50 per cent), on
average, half a month; Finished goods in stock, on average, one month. Credit allowed by suppliers is one
month;
ii) Credit allowed to debtors is two months; Average time-lag in payment of wages is 1.5 weeks and one
month in overhead expenses; one-fourth of the output is sold against cash; cash in hand and at bank is
desired to be maintained at Rs 3,65,000.

You are required to prepare a statement showing the working capital needed to finance a level of activity of 1,04,000
units of production. You may assume that production is carried on evenly throughout the year, and wages and overheads
accrue similarly. For calculation purposes, 4 weeks may be taken as equivalent to a month.

Answer: 38,95,000

10.From the following information calculate the working capital:

Annual production 15,600 units
Costs per unit (in Tk.):
RM 5
DL 4
 O/H 2
WIP and FG costs involves all these three costs i.e. Tk. 11 that is Total cost
Time:
RM 3 weeks
(WIP)Processing period 4 weeks
FG 5 weeks
Credit allowed by creditors 3 weeks
Credit allowed to debtors 4 weeks
Lag in payment of wages 2 weeks
Lag in payments of O/H 2 weeks
Assume that the selling price is 15 tk per unit and no additional cash is required to be kept at hand.

Answer: 37,500

11.Assume the same scenario as question no 10 but Tk. 5,000 Provision/ Margin for Contingencies/Extra cash is
required to be kept at hand. Answer: 42,500
12.Suppose a firm receives $2 million per day via the transit system, assume that checks were in mail for an average
of 4 days, that the firm takes 0.5 days to process checks and get them to the bank, and that the firm’s bank takes 1.3
days to obtain funds for the checks. If the firm could accelerate the transit process and had these funds at hand, it
could invest them at the firm's cost of capital of 10%. What is the opportunity cost of the float? Answer: $1.16M
13.Assume that the firm receives checks from four customer zones (zones A, B, C, and D), and has solicited lockbox
proposals from banks in three of the zones (zones B, C, and D). It has also collected the other data necessary to
analyze costs from various lockbox strategies. Data from lockbox proposals, the mail times from zone to zone, the
dollar amount of checks originating in each zone, and the clearing times for the proposed lockboxes are presented
in Table 2-2. The firm’s required rate of return is 9 percent and the average size of an incoming check is $2,500.
This average size does not vary among the origin zones.

14.Assume that a particular lockbox of a firm receives an average of $75,000 per day in receipts. The firm follows a
policy of transferring the collected cash from this lockbox bank to a regional or central concentration bank at the
end of each business day. For this particular situation, a depository transfer check would cost $1.50 and provide
 two-day availability; an ACH electronic transfer would cost $3.00 and provide one-day availability; and a wire
transfer would cost $16.00 and provide one-half-day availability. The required return is 8 percent per year.
Determine the total cost of each method.
15.A company had sales of Tk. 50,000 in March and Tk. 60,000 in April. Forecasted sales for May, June, and July are
Tk. 70,000, Tk. 80,000 and Tk. 10, 000 respectively. The firm has a cash balance of Tk. 20,000 on May 1 (However,
the desired cash level is 10% of the month’s sale). Given the following data, prepare and interpret a cash budget
for May, June, and July.

i) The firm makes 20% of sales for cash, 60% is collected in the next month and the remaining 20% is collected
in the second month following the sale.

ii) The firm receives other income of Tk. 8000 per month.

iii) The firm’s actual or expected purchases, all made for cash are Tk. 50,000, Tk. 70,000, and Tk. 80,000 for
the month May, June, and July respectively.

iv) Rent payment is Tk. 3000 per month.

v) Wages and salaries are 10% of the previous month’s sales.

vi) Cash dividends of Tk. 8000 will be paid in June.

vii) A cash purchase of equipment costing Tk. 6000 is scheduled to be paid in July.

viii) Taxes of Tk. 6000 are due in June.

16.(A variant of 15) A company had sales of Tk. 50,000 in March and Tk. 60,000 in April. Forecasted sales for May,
June, and July are Tk. 70,000, Tk. 80,000 and Tk. 10, 000 respectively. The firm has a cash balance of Tk. 20,000
on May 1 (However, the desired cash level is 10% of the month’s sale). Given the following data, prepare and
interpret a cash budget for May, June, and July.
i. The firm makes 20% of sales for cash, 60% is collected in the next month and the remaining 20% is collected
in the second month following the sale.

ii. The firm receives other income of Tk. 8000 per month.

iii. The firm’s actual purchase of Tk. 60,000 in March and Tk. 70,000 in April. The firm’s expected purchases are
Tk. 50,000, Tk. 70,000, and Tk. 80,000 for the months of May, June, and July respectively. The firm buys 30%
of purchases for cash, 40% is paid in the next month and the remaining 30% is paid in the second month
following the purchase.

iv. Rent payment is Tk. 3000 per month.

v. Wages and salaries are 10% of the previous month’s sales.

vi. Cash dividends of Tk. 8,000 will be received in June.

vii. A cash purchase of equipment costing Tk. 6000 is scheduled to be paid in July.

viii. Taxes of Tk. 6000 are due in June.

ix. Expected cost of debt is 1% of sales in each month.
17. Make a cash forecast using following information for July-December period:
i. 10% of total sales is cash basis or collected same month

ii. 60% sales are collected in the following month of sales

iii. 29% of sales are collected in second month following sales

iv. 1% of sales become bad-debt

In prior two months sales were $500,000 (May) & $550,000 (June)
Sales forecast for 6 months: Jul: $600,000, Aug: $700,000, Sept: $800,000, Oct: $750,000, Nov: $ 650,000 and that for
Dec: $500,000

Cash Payments for the period:

i. Direct Materials, 42% of sales of two months prior to current month

ii. All purchases are paid on term – Net 60 basis

iii. Direct Labour, 34% of sales from Jul to Sept & 35% of sales from Oct – Dec, which are paid in the month
of expenses

iv. Monthly fixed cash expenses (O/H) is estimated $40,000

v. Tax installments of $ 220,000 will be paid in September and December

vi. An ongoing capital investment will require cash payments of $90,000 in Aug, Oct & Dec.

vii. Interest expense and income are ignored

18. (Variant of 17) Make a cash forecast using following information for July-December period:

v. 30% of total sales is cash basis or collected same month

vi. 50% sales are collected in the following month of sales

vii. 19% of sales are collected in second month following sales

viii. 1% of sales become bad-debt

In the prior two months sales were $500,000 (May) & $550,000 (June)

Sales forecast for 6 months: Jul: $600,000, Aug: $700,000, Sept: $800,000, Oct: $750,000, Nov: $ 650,000 and that for
Dec: $500,000

Cash Payments for the period:

viii. Direct Materials, 42% of sales of two months prior to current month

ix. All purchases are paid on term – Net 60 basis

x. Direct Labour, 34% of sales from Jul to Sept & 35% of sales from Oct – Dec, which are paid in the month
of expenses

xi. Monthly fixed cash expenses (O/H) is estimated $40,000

xii. Tax installments of $ 220,000 will be paid in September and December

xiii. Ongoing capital investments will require a total cash payment of $90,000 in Aug, Oct & Dec.

xiv. Interest expense and income are ignored

19. Determine the Net Cash Flow, Net Cash Position, and Surplus/Deficit from the given information
Present B/S Proposed B/S
CA
Cash 10 10
A/R 979 960
Inventory 835 820
LTA
Property 12,000 11,700
CL
A/P 745 730
N/P 500 500
LTD 7,000 8,000
Total Uses 8,245 9,230
Total Current Asset 1,815 1,790
 - Required Cash Tk 500
- Property will be Sold

Answer:

Sources
Net Income 500
Depreciation 145
Decreased Asset (A/R) 19
Decresed Asset (Property) 300
Decreased Asset (Inventory) 15
Increased Lianbility (LTD) 1,000
Total Sources 1,979
Uses
Decreased Liability (A/P) 15
Total 15

Net Cash Flow 1,964

Beginning Cash 10
Net Cash Position 1,974

Required Cash 500

Surplus/(Deficit) 1,474

20. (Variant of 19) Determine the Net Cash Flow, Net Cash Position, and Surplus/Deficit from the given information.

- Required Cash Tk 500

- Property expected to be increased in value by Tk 20
- A court case against the organization may result in 300tk of special claim in this year end. In that case, we have
to add that fund with the required/desired level of cash as a contingency fund.
- Equity financing of an amount of 2000 is planned to be arranged during the year.
21. (Variant of 20) Same as before but
- Property expected to be decreased in value by Tk 20
- Instead of equity financing, Disinvestment of RE of an amount of 1500 during this year in the form of dividend
distribution.
22. A firm expects that it will make payments of 20% of all accounts payable in week 3. The firm’s payment
management system predicts that 17.5% of the 3rd week's payments will be made on the 2nd day of the week
then. The daily cash flow for payments made to the supplier (A/C payable) in the second day of the 3rd week is
estimated to be 3.5% of the overall credit purchase of the firm which is estimated to be Tk. 80,000. Forecast the
payment.
Answer: Pnw = .175X.2 = .035. → Forecast of Payments (2,3) = .035 (80,000) = Tk. 2800

23. Hypothetical Simulation results for the Cash Forecasting

Problems: (Assume normal probability distribution)

1. Assume that the cost of having insufficient cash and the cost of hedges are such that a firm wishes to incur, at
maximum, a 5% chance of having insufficient cash to cover expenses. What is the maximum amount of firm
should arrange to borrow in September so that they will have only a 5% chance of having insufficient funds?

2. Assume that the cost of having insufficient cash and the cost of hedges are such that a firm wishes to incur, at
maximum, a 10% chance of having insufficient cash to cover expenses. What is the maximum amount of firm
should arrange to borrow in December so that they will have only a 10% chance of having insufficient funds?

3. How much the firm can invest its August surplus ($61.5) in securities so that there is only a 10% probability
that it will be required to disinvest (resell) its short-term investment in August?

4. How much the firm can invest its October surplus ($20.5) in securities so that there is only a 1% probability
that it will be required to disinvest (resell) its short-term investment in October?