All of the following are alternative marketable securities suitable for investment except:
Answer(s): D
Marketable securities are near-cash items used primarily for short-term investment. Examples include U.S. Treasury bills, Eurodollars. commercial paper, money-market mutual funds with portfolios of short-term securities, bankers' acceptances, floating rate preference stock, and negotiable CDs of U.S. banks. A convertible bond is not a shortterm investment because its maturity date is usually more than one year in the future and its price can be influenced substantially by changes in interest rates or by changes in the investee's stock price.
Why would an entity maintain a compensating cash balance?
Answer(s): B
The compensating cash balance is the money left in a checking account in the bank in order to compensate the bank for services it provides.
The treasury analyst for a manufacturing entity has estimated the cash flows for the first half of next year (ignoring any short-term borrowings) as follows:The entity has a line of credit of up to US $4 million on which it pays interest monthly at a rate of 1% of the amount used. The entity is expected to have a cash balance of US $2 million on January 1, with no amount of its line of credit used. Assuming all cash flows occur at the end of the month approximately how much will the entity pay in interest during the first half of the year?
The sum of the beginning balance and inflows exceeds the outflows for the first 2 months. At the end of March, however, the entity must use US $2.000.000 of its line of credit US 62.000.000 beginning balance $6,000,000 inflows - $10.000.000 outflows. Thus, interest for April is US $20.000 1% x $2.000,000). The net cash outflow for April ignoring short-term borrowings) is US $1.000.000 of an additional US $1,000,000 of the line of credit. However, the US $20.000 of interest for April must also be paid, so the amount of the line of credit used in May is US $3,020,000 $2.000,000 + $1.000.000 + $20.000)_ Interest for May is therefore US $30.200 1% $2,000.000 ) The net cash inflow for May of US $2,000,000 again ignoring short-term borrowings) and the borrowing of US $30.200 to pay the interest for May, the amount of the line of credit used in June is US $1.050.200_ Interest in June is US $10.502 1% $1,050,200), and total interest is US $60,702 $20,000 $ $30,200 $10,502). Consequently, the closest answer is US $61.000.
The following information applies to an entity. Purchases Sales:A cash payment equal to 40% of purchases is made at the time of purchase, and 30% is paid in each of the next 2 months. Purchases for the previous November and December were US $150,000 per month. Payroll is 10% of sales in the month it occurs, and operation expenses are 20% of the following month's sales July sales were US $220,000). Interest payments were US , " x,000 paid quarterly in January and April.What were the entity's cash disbursements for the month of April?
The cash disbursements for the month of April include 40% of April purchases, 30% of March purchases, 30% of February purchases, April payroll 10% of April sales), operating expenses 20 I of May sales), and an interest payment of US $20.000.
Shown below is a forecast of sales for the first 4 months of the year all amounts are in thousands of dollars).On average, 50% of credit sales are paid for in the month of sale, 30% in the month following the sale, and the remainder is paid 2 months after the month of sale. Assuming there are no bad debts, what is the expected cash inflow in March?
Cash inflows for March would consist of 50% of March credit sales US $90 x 50% = US $45). Plus 30% of February credit sales US $120 x 30% = US $36). plus 20% of January credit sales US $ 11-11. 20% = US $20). plus cash sales for March of US $18.Consequently, total collections equal US $1 18,000.
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