CASH MANAGEMENT AND WORKING CAPITAL

Problem 6
Panda Company has 100,000 shares of stock outstanding. Below is part of Paumar’s
statement of financial position for the last fiscal year.

Panda Company
Statement of Financial Position-Selected Items
December 31, 2019

Cash Php 450,000

Accounts receivable 850,000
Merchandise inventory 700,000
Supplies 50,000
Accounts payable 835,000
Notes payable-current 65,000

What is the maximum amount Panda Company can pay as cash dividends per share
while maintaining a minimum current ratio of 2.2 to 1? Assume that all accounts other
than cash remain unchanged.

Problem 7
Currently, Kieran Company uses a decentralized collection system where customers
mail their checks to one of the firm’s eight regional locations. Its annual sales are
Php95million. Checks are deposited each business day in a local bank and the amount
of the deposit is sent to the firm’s concentration bank in Dallas. The average time
between the deposit in the local bank and the availability of those funds is 6 days.
Kieran Company has determined that the use of wire transfers will reduce the float by
four days, but the transfer will cost Php7.50.

If transfer will be made on the 250 days that banks are open each year, should Kieran
Company switch to the wire transfer system? Assume that Kieran Company can earn
8% on the funds released through this more efficient transfer.

Problem 8
Camden has completed an analysis of check-clearing time of five key suppliers. On a
weekly basis, the firm has a Php100,000 check disbursed to each of these suppliers,
totaling Php500,000. In examining the check-clearing time of each supplier, the firm
found out the following:
 Number of business days
for check to clear Supplier
3 Aida
5 Lorna
6 Fe
7 Mae
8 Tae
Given this information, what recommendation will the finance manager give the firm with
respect to paying its suppliers weekly? Explain.

Problem 9
Karlena Company has been offered by its bank to manage its cash at a cost of
Php35,000 per year. Under the proposed cash management , the firm can reduce the
cash required on hand by Php180,000. Since the bank also does a lot of record-
keeping, the firm’s administrative cost will decrease by Php2,000 per month.
What should be the recommendation to the firm with respect to the proposed cash
management assuming the firm’s opportunity cost is 12%?

Problem 10
Alexandra is considering switching from depository transfer checks to using wire
transfers for sending funds from its local banks to its main bank in Makati. The cost of
the wire transfer is Php10 more than the cost of depository transfer checks. The change
will reduce the total float by 5 days. Alexis can earn 12% on the funds released through
the more efficient transfer.

If Alexandra has 25 local banks, what annual sales level will the firm require before the
change to wire transfers become profitable? Assume there are 250 business days each
year. Use 360 days in a year.