Cash Flow of Accounts Receivable, Straight Bank Loan, and Selling Bonds

MANAGERIAL FINANCE 2 ASSIGNMENT 8
Student’s Name:
Affiliated Institution:
Date:
Part A: Cash Flow of Accounts Receivable
Forecasting uses patterns of past data for developing a theory about future business performance. For example, Myers and Associates, a famous law office in California, bills its clients on the first of each month. Clients pay in the following way: 40% pay at the end of the first month, 30% pay at the end of the second month, 20% pay at the end of the third month, 5% pay at the end of the fourth month, and 5% default on their bills
Figure SEQ Figure \* ARABIC 1:Actual and Anticipated billings
Fourth-quarter actual billing 2016

First-quarter anticipated billing 2017

Oct

Nov

Dec

Jan

Feb

Mar

$ 392,000

$ 323,000

$ 296,000

$ 340,000

$ 360,000

$ 408,000

Explanation:
If the anticipated cash flow for the first quarter of 2018 will follow the past billings and anticipated billings same pattern. To get the anticipated cash flow for each month the following procedure has to follow,
Solution:
End of January anticipated cash flow from the billing,
=5% of October +20% of November +30% of December + 40% of January
= (5/100*392,000) +(20/100*323,000) + (30/100*296,000) +(40/100*340,000)
=$309,000
End of February anticipated cash flows from the billings,
= 5% of November + 20% December + 30% of January + 40% of February
= (5/100*323,000) + (20/100*296,000) + (30/100*340,000) + (40/100*360,000)
=$321,000
At end of the march anticipated cashflows from the billing,
= 5% of December + 20% of January + 30% of February + 40% of March
= (5/100*296,000) + (20/100*340,000) + (30/100*360,000) +(40/100*408,000)
=$354,000
Part B: Straight Bank Loan
Explanation:
To calculate the APR of a loan, you need to take into consideration the principal amount, the number of years the loan will last, and the extra charges that the loan incurs in addition to interest. Various steps are followed to calculate APR: first, calculate the interest rate, add the administrative fees to the interest amount, divide by the loan amount (principal), divide by the total number of days in the loan term, multiply all by 365 (one year), and, multiply by 100 to convert to a percentage. Formula for APR is given by: APR formula=fee+interestprincipaln*number of periodic payment*100
Note that under all the months there is no fee included.
Solution:
Given that the effective annual interest rate for a loan in all months is 9.38% then using the formula EAR=1+inn-1. Where n is the number of compounding period, i nominal interest rate, and EAR is the effective annual interest. We can find the interest rate for each of the months which will be used in calculating the APR.
Hence the APR for the three period will be given by:
1. A loan of $200,000 for six years
If a person pays a total of 9.38% effective annual interest rate. It will take 9.38%*$200000= $ 18760 to pay for one year. Therefore, the total payment for six years will be 18760*6= $112,560 which is referred as the total accrued interest. Using the APR formula=fee+interestprincipaln*numberof periodic payment*100where fee is z...