Key Concept Questions: Chapter 9 9-6. Create a cumulative cash flow graph for a
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Key Concept Questions: Chapter 9
9-6. Create a cumulative cash flow graph for a business with the following monthly cash balances:
January
$40,000
February
$25,000
March
$13,000
April
$5,000
May
$12,000
June
$2,000
July
0
August
0
September
$1,500
October
$8,500
November
$12,000
December
$21,000
9-7. Fill in the following table, using the future value chart in this chapter, to show the amounts of one invested dollar’s growth at the interest rates and time periods given.
Periods
Interest Rate (%)
Future Value of $10
2
5
$11.03
5
8
10
10
1
1
7
3
9-8. Fill in the following table, using the present value chart, to show the amounts of the net present value of $100 at the interest rates and time periods given.
Periods
Interest Rate (%)
Present Value of $100
2
5
$90.79
5
8
10
10
1
1
7
3
9-9. Calculate working capital for Angelina’s company. Describe how her level of working capital might affect her business decisions.
Angelina’s Jewelry Company Balance Sheet July 30, 2014
ASSETS
Current Assets
Cash
$10,000
Inventory
10,000
Other Current Assets (Securities)
10,000
$30,000
Total Current Assets
$30,000
Long-Term Assets
70,000
TOTAL ASSETS
$100,000
LIABILITIES
Short-Term Liabilities
Accounts Payable (AP)
$10,000
Short-Term Loans
5,000
Total Short-Term Liabilities
$15,000
Total Long-Term Liabilities
15,000
OWNER’S EQUITY
70,000
TOTAL LIABILITIES + OWNER’S EQUITY
$100,000
January
$40,000
February
$25,000
March
$13,000
April
$5,000
May
$12,000
June
$2,000
July
0
August
0
September
$1,500
October
$8,500
November
$12,000
December
$21,000
Explanation / Answer
Month Cash Balance Cash flow of the Month January $40,000 February $25,000 (15,000) March $13,000 (12,000) April $5,000 (8,000) May $12,000 7,000 June $2,000 (10,000) July 0 (2,000) August 0 - September $1,500 1,500 October $8,500 7,000 November $12,000 3,500 December $21,000 9,000 9-7. Periods Interest Rate (%) Future Value of $10 2 5 $11.03 5 8 14.69 10 10 25.94 1 1 10.10 7 3 12.2987 9-8. Periods Interest Rate (%) Present Value of $100 2 5 $90.79 5 8 68.06 10 10 38.55 1 1 99.01 7 3 81.31 9-9. Working Capital = Current Asset -Current Liabilities = 30000-15000 = 15,000 As Angelina's jewellery has good amount of positive working capital, it can take decisions for increasing the sales turnover by additional inventory purchase or can take desiosions to slightly increase the credit term of sales as the Current assets are good to suport the funding for additional inventory or less collection of cash for a short period.
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