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Recording business transactions/ forecasting

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Working Capital Management. Indicate how each of the following six different transactions that Dynamic Mattress might make would affect (i) cash and (ii) net working capital:

1. Paying out a $2 million cash dividend.
2. A customer paying a $2,500 bill resulting from a previous sale.
3. Paying $5,000 previously owed to one of its suppliers.
4. Borrowing $1 million long-term and investing the proceeds in inventory.
5. Borrowing $1 million short-term and investing the proceeds in inventory.
6. Selling $5 million of marketable securities for cash.
Forecasting Collections. Here is a forecast of sales by National Bromide for the first 4 months of 2004 (figures in thousands of dollars):
Month:
1
2
3
4
Cash sales
15
24
18
14
Sales on credit
100
120
90
70
On average, 50 percent of credit sales are paid for in the current month, 30 percent in the next month, and the remainder in the month after that. What are expected cash collections in months 3 and 4?

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Solution Summary

The solution calculates and solves working capital management questions for Dynamic Mattress. This includes how events would effect, cash and net working capital.

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