1.) The Robinson Company had the following current assets and current liabilities for these two years:

2010

2011

Cash and Marketable Securities

$50,000

$50,000

Accounts Receivable

300,000

350,000

Inventories

350,000

500,000

Total Current Assets

$700,000

$900,000

Accounts Payable

$200,000

$250,000

Bank Loan

0

150,000

Accruals

150,000

200,000

Total Current liabilities

$350,000

$600,000

a) If sales in 2010 were $1.2 million, sales in 2011 were $1.3 million, and cost of goods sold was 70 percent of sales, how long were the Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time?
2.) The Robinson Company from the problem above had net sales of $1,200,000 in 2010 and $1,300,000 in 2011.
a) Determine the receivable turnover in each year
b) Calculate the average collection period for each year.
c) Based on the receivables turnover for 2010, estimate the investment in receivables if net sales were $1,300,000 in 2011.
d) How much of a change in the 2011 receivables occurred?
3.) Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011.
a) Calculate the inventory turnover for each year. Comment on your findings.
b) What would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained?
4.) A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise the bill is due at the end of sixty days. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? Explain your answer.
5.) Assume that you have been offered cash discounts on merchandise that can be purchased from either of two suppliers. Supplier A offers trade credit terms of 3/20, net 70, while supplier B offers 4/15, net 80. What is the approximate effective cost of missing the cash discounts from each supplier? If you could not take advantage of either cash discount offer, which supplier would you select?
6.) Bank A offers a loan with a 10 percent stated annual rate and a 10 percent compensating balance. You wish to obtain $250,000 in a six month loan.
a) How much must you borrow to obtain $250,000 in usable funds? Assume you currently do not have any funds on deposit at the bank. What is the effective annual rate on a six month loan?
b) How much must you borrow to obtain $250,000 in usable funds if you currently have $10,000 on deposit at the bank? What is the effective annual rate on a sixmonth loan?
c) How much must you borrow to obtain $250,000 in usable funds if you currently have $30,000 on deposit at the bank?
d) What is the effective annual rate on a sixmonth loan?
