1. Gojo Inc. has a total annual cash requirement of P18,150,000 which are to be paid uniformly.

Gojo has the

opportunity to invest the money at 34% per annum. The company spends, on the average, P50 for every cash
conversion to marketable securities. What is the optimal cash conversion size?

2. Hyperbole Corporation estimates its total annual cash disbursements of P4,251,250 which are to be paid uniformly.
Hyperbole has the opportunity to invest the money at 12% per annum. The company spends, on the average,
P35 for every cash conversion to marketable securities and vice versa. What is the opportunity cost
of keeping cash in the bank account?

3. What are the expected annual savings from a lock-box system that collects 100 checks per day averaging P600 each,
and reduces mailing and processing times by 3.5 and 2.5 days respectively, if the annual interest rate is 9%?

4. Caja Company sells on terms 3/10, net 30. Total sales for the year are P800,000. Forty percent of the customers
pay on the tenth day and take discounts; the other 60 percent pay, on average, 45 days after their purchases.
What is the average amount of receivables?

5. .Palm Company’s budgeted sales for the coming year are P60,700,000 of which 80% are expected to be credit sales
at terms of n/30. Palm estimates that a proposed relaxation of credit standards will increase credit sales by
20% and increase the average collection period from 30 days to 40 days. Based on a 360-day year, the
proposed relaxation of credit to standards will result in an expected increase in the average accounts
receivable balance of?

6. Currently, La Carlota Company has annual sales of P3,500,000. Its average collection period is 45 days, and bad
debts are 3 percent of sales. The credit and collection manager is considering instituting a stricter collection
policy, whereby bad debts would be reduced to 1.5 percent of total sales, and the average collection period
would fall to 30 days. However, sales would also fall by an estimated P400,000 annually. Variable costs
are 75 percent of sales and the cost of carrying receivables is 10 percent. Assume a tax rate of 40 percent
and 360 days per year. What would be the decrease in investment in receivables if the
change were made?

7. What is the economic order quantity for the following inventory policy: A firm sells 52,000 bags of premium sugar
per year. The cost per order is P300 and the firm experiences a carrying cost of P0.80 per bag.

8. Marsman Co. has determined the following for a given year:

Economic order quantity (standard order size) 10,000 units

Total cost to place purchase orders for the year P80,000
Cost to place one purchase order P 200
Cost to carry one unit for one year P 8
What is Marsman’s estimated annual usage in units?

9. Durable Furniture Company uses about 200,000 yards of a particular fabric each year. The fabric costs P50 per yard.
The current policy is to order the fabric four times a year. Incremental ordering costs are about P400 per
order, and incremental carrying costs are about P0.75 per yard, much of which represents the opportunity
cost of the funds tied up in inventory. How much total annual costs are associated with the
current inventory policy?

10. Asia Inc. has a pool of cash that it uses to pay bills. When the cash is exhausted, it replenishes its pool by selling T-
bills. The firm disburses P 800,000 in cash every year, and every sale of T-bills costs P 80. The current risk-
free rate is 5%. What is the optimal cash balance for Asia?

11. A firm needs a total of P 60,000,000 in new cash for transaction purposes. The annual interest rate on marketable
securities is 12% and the brokerage fee cost per transaction of selling securities to replenish cash is P 2,000.
Which of the following is closest to the firm’s optimal average cash balance?

12. A firm has an average age in inventory of 70 days, an average collection period of 55 days, and an average payment
period of 30 days. What is the number of days in the cash flow cycle?

13. Arctic is a retail mail order firm that currently uses a central collection system. An average of 6 days is required for
mailed checks to be received, 3 days for Arctic to process them, and 2 days for the checks to clear through
its bank. A proposed lockbox system would reduce the mailing and processing time to 2 days and the check-
 clearing time to 1 day. Arctic has an average daily collection of P 200,000. If Arctic adopts the lockbox
system, its average cash balance will increase by

14. America Company is considering implementing a lockbox system at a cost of P 40,000 per quarter. Annual sales are
80,000,000, and the lockbox system will reduce collection time by 3 days. If America can invest funds at
8%, should it implement lockbox system? (Assume a 360-day year)

15. China Inc. has a majority of its customers located in Metro Manila. Tibetan, a major retail bank, has agreed to
provide a lockbox system to China at a fixed fee of P 60,000 per year and a variable fee of P0.50 for each
payment processed by the bank. On average, China receives 50 payments per day, each averaging P 20,000.
With the lockbox system, rate on money market securities is 6%. If China makes use of the lockbox system,
what would be the net benefit to the company? (Use 365 days per year)

16. Russia, Inc. sells with terms 3/10, net 30 days. Gross sales for the year are P 3,400,000 and the collections
department estimates that 30% of the customers pay on the tenth day and take discounts; 40% pay on the
thirtieth day; and the remaining 30% pay, on the average, 40 days after the purchase. Assuming 360 days per
year, what is the average collection period?

17. A company’s budgeted sales for the coming year are P 86 million, of which 80% are expected to be credit sales at
terms of n/30. The company estimates that a proposed relaxation of credit standards would increase credit
sales by 30% and increase the average collection period from 30 to 45 days. Based on a 360-day year, the
proposed relaxation of credit standards would result to an increase in AR balance by

18. Singapore Corporation plans to tighten its credit policy. Below is the summary of changes:

OLD policy NEW policy

Average number of days collection 75 50
Ratio of credit sales to total sales 70% 60%
Projected sales for the coming year are P 60 million and it is estimated that the company’s credit sales to be
5% less if the new policy is implemented. Assuming a 360-day year, what is the effect of the new policy on
accounts receivable?