FLOAT

NET FLOAT
AVAILABLE BALANCE AT THE BANK 95000
BOOK BALANCE 24300
DISBURSEMENT FLOAT ( > 0) MINUS 70700

AVAILABLE BALANCE AT THE BANK 12700

BOOK BALANCE 2400
COLLECTION FLOAT (< 0) ADD 15100

NET FLOAT 85800

CASH DISCOUNTS
PRINCIPAL AMOUNT 33480
INTEREST RATE 1.00%
CASH DISCOUNT/ IMPLICIT INTEREST 334.800
REMITTANCE 33145.200

EAR
CREDIT TERMS
PRINCIPAL AMOUNT 1000
RATE 1%
DAYS, IF TAKEN 10
DUE DATE 30
PER YEAR 365

INTEREST 10
PERIOD RATE 1.010101%
PERIOD 20
PERIODS PER YEAR 18.25
MINUS 1

1.01010101010101
EAR 0.201317 >

CASH CONVERTION CYCLE

OPERATING CYCLE
AVERAGE AGE INVENTORIES 5
AVERAGE COLLECTION PERIOD 6
OPERATING CYCLE 11

CASH CONVERTION CYCLE

OPERATING CYCLE 7
AVERAGE PAYMENT PERIOD 6
CASH CONVERTION CYCLE 1

CASH CONVERTION CYCLE (GIVEN)

AVERAGE AGE INVENTORIES 5
AVERAGE COLLECTION PERIOD 5
AVERAGE PAYMENT PERIOD 5
CASH CONVERTION CYCLE 5
EOQ MODEL

TOTAL CARRYING COST

AVERAGE INVENTORY 5
CARRYING COST PER UNIT 6
TOTAL CARRYING COST 30

TOTAL RESTOCKING COST

FIXED COST PER ORDER 5
NUMBER OF ORDERS PER YEAR 5
TOTAL RESTOCKING COST 25

TOTAL COST
TOTAL CARRYING COST 30
TOTAL RESTOCKING COST 25
TOTAL COST 55

TOTAL COST (GIVEN)

TOTAL CARRYING COST 5
TOTAL RESTOCKING COST 5
TOTAL COST 10

INVENTORY QUANTITY IN EACH ORDER

CONSTANT 2
FIRM’S TOTAL UNIT SALES PER YEAR 100,000
FIXED COST PER ORDER 50
CARRYING COST PER UNIT 1.5
INVENTORY QUANTITY IN EACH ORDER 2581.9888974716

AVERAGE DAILY FLOAT

TOTAL AMOUNT OF CHECKS RECEIVED 59200
DAYS IN A MONTH 30
AVERAGE DAILY RECEIPTS 1973.3333333333
DAYS TO CLEAR 3
AVERAGE DAILY FLOAT 5920 >

MANAGING INVENTORY

ORDER COST
ORDER COST PER ORDER 5
USAGE IN UNITS PER PERIOD 5
ORDER QUANTITY IN UNITS 5
ORDER COST 5

CARRYING COST
CARRYING COST PER UNIT PER PERIOD 5
ORDER QUANTITY IN UNITS 1150
CONSTANT 2
CARRYING COST 2875

TOTAL COST
ORDER COST PER ORDER 5
USAGE IN UNITS PER PERIOD 5
ORDER QUANTITY IN UNITS 5
CARRYING COST PER UNIT PER PERIOD 5
CONSTANT 2
TOTAL COST 17.5

ECONOMIC ORDER QUANTITY

CONSTANT 2
USAGE IN UNITS PER PERIOD 1150
ORDER COST PER ORDER 8187.5
CARRYING COST PER UNIT PER PERIOD 8187.5
ECONOMIC ORDER QUANTITY 47.958315233127
EOQ MODEL 2.0

ORDERING COST
COST 100
ORDER 2
NUMBER OF ORDERS PER YEAR 4
ORDERING COST 200

CARRYING COST
CARRYING COST 8199
PERIOD PER YEAR 52
ORDER SIZE 1150
CONSTANT 2
CARRYING COST 90662.019230769

TOTAL COST
ORDERING COST 5
CARRYING COST 7
TOTAL COST 12

REORDER POINT
LEAD TIME IN DAYS 10
DAILY USAGE 4.4444444444445

ANNUAL USAGE 1600

CALENDAR 360

REORDER POINT 44.444444444445

AVERAGE COLLECTION PERIOD

PERCENT, TAKING THE DISCOUNT 55%
DISCOUNT PERIOD 10
PERCENT, NOT TAKING THE DISCOUNT 45%
DAYS UNTIL FULL PAYMENT 30
AVERAGE COLLECTION PERIOD - DAYS 19
ACCOUNT RECEIVABLE MANAGEMENT: CHANGING CREDIT STANDARD

AVERAGE INVESTMENT IN ACCOUNT RECEIVABLE

TOTAL VARIABLE COST OF ANNUAL SALES 6
TURNOVER OF ACCOUNT RECEIVABLE 7
AVERAGE INVESTMENT IN ACCOUNT RECEIVABLE 0.857142857142857

TURNOVER OF ACCOUNT RECEIVABLE

CALENDAR YEAR- DAYS 365
AVERAGE COLLECTION PERIOD 19
TURNOVER OF ACCOUNT RECEIVABLE 19.2105263157895

AVERAGE RECEIVABLES
TOTAL CREDIT SALES 4542.86
RECEIVABLE TURNOVER 19
AVERAGE RECEIVABLES 239.097894736842

ADDITIONAL PROFIT CONTRIBUTION FROM SALES

OLD SALES LEVEL 60,000
NEW SALES LEVEL 63,000
INCREASE IN SALES 3,000

PRICE PER UNIT 10

VARIABLE COST PER UNIT 6
CONTRIBUTION MARGIN PER UNIT 4

ADDITIONAL PROFIT CONTRIBUTION FROM SALES 12,000

COST OF MARGINAL INVESTMENT IN A/R

UNDER PRESENT PLAN
PRICE PER UNIT 6
OLD SALES LEVEL 60,000
360,000

DAYS PER YEAR 365

ACP/CREDIT TERMS DAYS 30
12.16667

PRICE PER UNIT X OLD SALES LEVEL 360,000.00

DAYS PER YEAR / ACP 12.17
AVERAGE INVESTMENT 29,589.04110

UNDER PROPOSED PLAN

 PRICE PER UNIT 6
NEW SALES LEVEL 63,000
378,000.00

DAYS PER YEAR 365

ACP/CREDIT TERMS DAYS 45
8.1111

PRICE PER UNIT X OLD SALES LEVEL 378,000.00000

DAYS PER YEAR / ACP 8.1111
AVERAGE INVESTMENT 46,602.74

AVERAGE INVESTMENT UNDER PROPOSED PLAN 46,602.74

LESS: AVERAGE INVESTMENT UNDER PRESENT PLAN 29,589.04110
MARGINAL INVESTMENT IN ACCOUNT RECEIVABLE 17,013.70
MULTIPLY: REQUIRED RETURN ON INVESTMENT 0.15
COST OF MARGINAL INVESTMENT IN A/R 2552.05479452055

COST OF MARGINAL BAD DEBTS

UNDER PROPOSED PLAN
BAD DEBT RATE 0.02
PRICE PER UNIT 10
NEW SALES LEVEL 63000
12600

UNDER PRESENT PLAN

BAD DEBT RATE 0.01
PRICE PER UNIT 10
OLD SALES LEVEL 60000
6000

COST OF MARGINAL BAD DEBTS 6600

Effects on Dodd Tool of a Relaxation of Credit Standards

Credit Monitoring: Aging of Accounts Receivable

COST OF FOREGOING CASH DISCOUNTS
DISCOUNT % 2.00%
CONSTANT % 100%
CONSTANT -DAY 360
ALLOWED PAYMENT DAYS 40
DISCOUNT DAYS 15
98.00%
25
14.4
COST OF FOREGOING CASH DISCOUNTS 0.293877551020408

EFFECTIVE INTEREST RATE

CONSTANT 1
STATED INTEREST RATE 7.50%
NUMBER OF COMPOUNDING PERIODS PER YEAR 12
EFFECTIVE INTEREST RATE 0.077632598856031

INTEREST
PRINCIPAL 100000
RATE 10%
TIME 120
DAYS PER YEAR 360
INTEREST 3333.33333333333

INTEREST RATE
PRINCIPAL 1500000
TIME 90
DAYS PER YEAR 360
MATURITY VALUE 1650000
150000
0.1000
4
INTEREST RATE 0.40000

EFFECTIVE ANNUAL INTEREST RATE

FACE VALUE 5000000
SELLING PRICE 4958000
TIME 12
42000
EFFECTIVE ANNUAL INTEREST RATE 0.101653892698669