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    Finman - Module 5 Activities

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    Tricia Dimaano
    XYZ Corp calculates various cash flow metrics for checks written and received. Checks written totaling $30,000 clear in 7 days, resulting in a disbursement float of $210,000. Receipts of $17,000 are available in 2 days on average, giving a collection float of -$34,000. The net float is $176,000, meaning XYZ's available balance exceeds its book balance. BBZ Corp, a baby cologne manufacturer, is considering switching from a cash-only policy to extending 1-period credit. Under the new policy, sales would increase by 100 units but costs would also rise by $13,000. However, the NPV of switching is positive at $

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    Finman - Module 5 Activities

    Uploaded by

    Tricia Dimaano
    2K views7 pages
    XYZ Corp calculates various cash flow metrics for checks written and received. Checks written totaling $30,000 clear in 7 days, resulting in a disbursement float of $210,000. Receipts of $17,000 are available in 2 days on average, giving a collection float of -$34,000. The net float is $176,000, meaning XYZ's available balance exceeds its book balance. BBZ Corp, a baby cologne manufacturer, is considering switching from a cash-only policy to extending 1-period credit. Under the new policy, sales would increase by 100 units but costs would also rise by $13,000. However, the NPV of switching is positive at $

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    FINMAN - MODULE 5 ACTIVITIES

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    XYZ Corp calculates various cash flow metrics for checks written and received. Checks written totaling $30,000 clear in 7 days, resulting in a disbursement float of $210,000. Receipts of $17,000 are available in 2 days on average, giving a collection float of -$34,000. The net float is $176,000, meaning XYZ's available balance exceeds its book balance. BBZ Corp, a baby cologne manufacturer, is considering switching from a cash-only policy to extending 1-period credit. Under the new policy, sales would increase by 100 units but costs would also rise by $13,000. However, the NPV of switching is positive at $

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views7 pages

    Finman - Module 5 Activities

    Uploaded by

    Tricia Dimaano
    XYZ Corp calculates various cash flow metrics for checks written and received. Checks written totaling $30,000 clear in 7 days, resulting in a disbursement float of $210,000. Receipts of $17,000 are available in 2 days on average, giving a collection float of -$34,000. The net float is $176,000, meaning XYZ's available balance exceeds its book balance. BBZ Corp, a baby cologne manufacturer, is considering switching from a cash-only policy to extending 1-period credit. Under the new policy, sales would increase by 100 units but costs would also rise by $13,000. However, the NPV of switching is positive at $

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 7
    At a glance
    Powered by AI
    The key takeaways are the concepts and computations related to floats, credit analysis and extending credit based on NPV.

    Disbursement float is the number of days for checks to clear. Collection float is the number of days for cash receipts to be deposited. Net float is disbursement float minus collection float.

    The 5Cs of credit are: Character, Capacity, Capital, Collateral, Condition. They represent the customer's willingness, ability and assets that can be used to repay credit extended.

    FINMAN - MODULES 5 ACTIVITIES

    M5 Topic 1 Assignment (part 1)


    XYZ Corp. writes checks totaling P30,000. These checks clear in 7 days. Simultaneously, the
    firm receives P17,000. The cash is available in 2 days on average. Calculate the following:

    1. disbursement float
    2. collection float
    3. net float

    ** Interpret the answer.


    Answer:
    1. Disbursement Float = P30,000 x 7 days
    Disbursement Float = P210,000
    The amount of the disbursement float is P210,000 since the written check is not yet cleared until
    the end of 7 days.
    2. Collection Float = P17,000 x 2 days
    Collection Float = (P34,000)
    The amount of the collection float is (P34,000) since the cash will be made available after 2
    days.
    3. Net Float = Disbursement Float + Collection Float
    = P210,000 + (P34,000)
    Net Float = P176,000
    The net float shows a positive amount of P176,000 which means that the disbursements float
    exceeds the collection float. Also, this means that XYZ Corp.’s available balance is greater than
    its book balance.

    At any given time, the firm typically has uncashed checks outstanding of P210,000. At the same
    time, it has uncollected receipts of P34,000. Thus, the firm’s book balance is typically P176,000
    less than its available balance, for a positive P176,000 net float.
    M5 Topic 2 Assignment (part 1)

    1. What is credit analysis?


    2. Discuss the 5Cs of credit in one sentence each. (5 sentences all in all)
    3. How necessary is credit analysis in financial management decisions?
    4. Explain the purpose of having a collection policy.
    5. BBZ Corp. (manufacturer of baby cologne) is considering a new credit policy. The
    current policy is cash only. The new policy would involve extending credit for one period.
    Based on the following information, determine if a switch is advisable or not. The interest
    rate is 2 percent per period:

    Current Policy New Policy

    Price per unit P 175 P 175


    Cost per unit 130 130
    Sales per period in units 1,000 1,100

    ANSWER:
    1. When granting credit, a credit analysis is done to determine how much effort is needed to
    distinguish the customers who will pay and customers who will not pay.
    2. The first Cs of credit is known as Character in which the customer’s willingness to meet credit
    obligations are determined. Second, Capacity is the customer’s ability to meet credit obligations
    out of operating cash flows. Third, the Capital is about the customer’s financial reserves. Fourth,
    Collateral is the asset pledged by the customer in case a default may arise. Lastly, Condition is
    about the general economic conditions in the customer’s line of business.
    3. A credit analysis is necessary in financial management decisions since it will help to
    determine whether the company should grant credit or not. This is because certain scenarios
    and transactions may arise when granting credit such as customer’s willingness to pay their
    obligation on time, customer’s willingness to make the purchase, etc. These instances should
    be considered since it could bear either a loss or a gain to the company.
    4. A collection policy helps in monitoring the receivables from customers that purchased a good
    or service on account and spot troubles when obtaining payment on past-due accounts.
    5. a) PV = (P175 - P130) x (1,100 - 1,000) / 2%
    = (P45 x 100) / 2%
    = P225,000
    b) Cost of Switching = (P175 x 1,000) + [P130 x (1,100 - 1,000)]
    = P175,000 + P13,000
    = P188,000
    c) NPV of switching = -P188,000 + P225,000
    = P37,000
    Based from the computed answer, the switch is advisable for BBZ Corp. to take. This is
    because it shows that the amount of NPV of switching which is P37,000 is very profitable.
    The switch should be made or the switch is advisable because the NPV is higher than the total
    cost.

    Amazon Inventory Management


    Please watch the Amazon Inventory Management video.  As a Finance Management student,
    how will you assess the inventory management process used by the Amazon?
    Based from the video, the inventory management used by Amazon is called as random
    storing wherein each product has no specific place to store it properly classified with similar
    products. In my opinion, this type of inventory management is really difficult since all of the
    products are not sorted out properly so that it can easily be found and be counted. Even though
    they used robots to lift and transfer each boxes of random products, still, they could have
    avoided such expenses through purchasing such robots if only they have a more organized way
    of storing their inventories. Moreover, they could also easily determine which products are high
    in demand, products that are damaged, products that are perishable, etc. In this way, they will
    be able to think of other strategies to market the products that are low in demand, produce or
    purchase products that are high in demand, and avoid losses from items that are already not
    salable.
    M5 Topic 3 Assignment

    XYZ Corp. has a carrying cost (CC) of P0.75 per unit per year, fixed costs (F) of P50 per order,
    and a total unit sales (T) of P46,800 units. With the given data, complete the table:

    Carrying Costs (Q/2 x Restocking Costs (F x


    Restocking Qty (Q) TOTAL COSTS
    CC) T / Q)

    (500/2) x P0.75 = P50 x (46,800/500) =


    500 P4,867.50
    P187.50 P4,680.00
    (1,000/2) x P0.75 = P50 x (46,800/1,000) =
    1,000 P2,715.00
    P375.00 P2,340.00
    (1,500/2) x P0.75 = P50 x (46,800/1,500) =
    1,500 P2,122.50
    P562.50 P1,560.00
    (2,000/2) x P0.75 = P50 x (46,800/2,000) =
    2,000 P1,170.00 P1,920.00
    P750.00

    (2,500/2) x P0.75 = P50 x (46,800/2,500) =


    2,500 P936.00 P1,873.50
    P937.50

    (3,000/2) x P0.75 = P50 x (46,800/3,000) =


    3,000 P780.00 P1,905.00
    P1,125.00

    (3,500/2) x P0.75 = P50 x (46,800/3,500) =


    3,500 P668.57 P1,981.07
    P1,312.50
    SIF - ARTICLE REVIEW - GLOBAL ISSUE
    The recent COVID-19 pandemic has greatly affected many lives and business
    particularly the financial markets. While some managers and investors think that the financial
    markets will never be the same again and will continuously die down, there are still some who
    has a positive outlook with the life of the financial markets. The article written by Giles Coghlan
    (2020) entitled “How is COVID-19 affecting the financial markets” talks about the different
    methods and key global financial market movements that every investor should be aware of.
    First, deciding whether to buy, stay or sell assets and stocks. Each of the methods had its
    corresponding advantages and disadvantages depending on how conservative or aggressive an
    investor is on taking risks. Second, investing in gold is an attractive investment opportunity for
    some investors as these have performed well and is still in demand even during an economic
    turbulence. Third, stocking up shares especially during crisis when the stocks and shares can
    be bought at a lower price. This is because even though the stock prices fluctuate at the
    beginning of the period, it may have the potential to increase in the next few years and it would
    become more beneficial to the investors due to a much higher returns. Lastly, planning ahead is
    also an important factor so when situations like the COVID-19 pandemic arises, the company
    and the investors will know how they should behave and act on times of crisis.
    Having such cases, I agree with what the author has indicated in its article. It is true that
    the financial market is not always in good condition and it may face different situations like the
    COVID-19 pandemic that will greatly affect its current standing in the market. With this, every
    company and investor should always prepare for every possible scenario that may arise
    knowing that the global financial market is an extremely complex entity. With proper knowledge
    and methods to use, I believe that the company and investors will not be greatly burdened by
    the fact the global pandemic has affected the financial markets so much. With the information
    that I have learned through the article, I could use it to my advantage when I decided to invest in
    stocks and suddenly a situation occurs which resulted for the stock prices to fall. Having such, I
    would know what should I do when I came face to face with such challenges that will not result
    for me to gain losses due to the fluctuation in the financial market. Having enough knowledge in
    this sector will allow me to invest in profitable stocks and shares that will still remain profitable
    even after a crisis.
    Problem Solving (part 1)
    1. This is about Credit Policy. BBZ Corp. (manufacturer of baby cologne) is considering a new
    credit policy. The current policy is cash only. The new policy would involve extending credit for
    one period. The interest rate is 2 percent per period.  Based on the following information,
    determine if a switch is advisable or not. In your own words, explain your answer.

    Current Policy New Policy

    Price per unit P175 P 175

    Cost per unit 130 130

    Sales per period in units 1,000 1,100

     
    a) PV = (P175 - P130) x (1,100 - 1,000) / 2%
    = (P45 x 100) / 2%
    PV = P225,000
    b) Cost of Switching = (P175 x 1,000) + [P130 x (1,100 - 1,000)]
    = P175,000 + P13,000
    Cost of Switching = P188,000
    c) NPV of switching = -P188,000 + P225,000
    NPV of switching = P37,000
    Based from the computed answer, the switch is advisable for BBZ Corp. to take. This is
    because it shows that the amount of NPV of switching which is P37,000 is very profitable.
    If the switch is made, an extra 100 units per period will be sold at a gross profit of P175 - 130 =
    P45 each. The total benefit is thus P45 X 100 = P4,500 per period. At 2.0 percent per period,
    the PV is P4,500 / .02 = P225,000. The cost of the switch is equal to this period’s revenue of
    P175 X 1,000 units = P175,000 plus the cost of producing the extra 100 units: 100 X P130 =
    P13,000. The total cost is thus P188,000, and the NPV is P225,000 - 188,000 = P37,000. The
    switch should be made because the NPV is greater than its total cost.

    2.  This is about Credit Where Credit Is Due. You are the manager of 24/7 Enterprise. You
    are trying to decide whether or not to extend credit to a new customer. Your variable cost is P15
    per unit; the selling price is P22. This customer wants to buy 1,000 units today and pay in 30
    days. You think there is a 15 percent chance of default. The required return is 3 percent per 30
    days.  Assume that this is a one-time sale and that the customer will not buy if credit is not
    extended. Should you extend credit? In your own words, explain your answer.
    NPV = -P15 + (100% - 15%) x P22 / 1.03
    = -P15 + 85% x P22 / 1.03
    NPV = P3.16
    Based from the computation, credit should be granted since the NPV of granting credit
    shows a positive amount of P3.16 which means that 24/7 Enterprise would benefit from granting
    credit rather than declining the request of the customer which may result for the customer to not
    make the purchase at all.
    If the customer pays in 30 days, then you will collect P22 X 1,000 = $22,000. There’s only an 85
    percent chance of collecting this, so, you expect to get P22,000 X .85 = P18,700 in 30 days.
    The present value of this is P18,700 / 1.03 = P18,155.34. Your cost is P15 X 1,000 = P15,000,
    so, the NPV is P18,155.34 - 15,000 = P3,155.34. Credit should be extended because the NPV
    is greater than its cost.

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