Title: Cash Budget, Float Measurement, and Illegal Check Kiting

Page 606: Problem 11

Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2009:

The company predicts that 5 percent of its credit sales will never be collected. 35 percent of its sales will be collected in the month of the sale, and the remaining 60% will be collected in the following month. Credit purchase will be paid in the month following the purchase. In March 2009, credit sales were $245,000 and credit purchases were $168,000. Using this information, complete the cash budget:

Page 630: Problem 19.1

Float Measurement: On a typical day, a firm writes checks total ling $3,000. These checks clear in seven days. Simultaneously, the firm receives $1,700. The cash is available in two days on average. Calculate the disbursement, the collection and the net floats. How do you interpret the answer?

Page 631: Problem 13 (LO1)

An unfortunately common practice goes like this (warning: don’t try this at home): Suppose you are out of money in your checking account; however, your local grocery store will, as a convenience to you as a customer, cash a check for you. So, you cash a check for $200. Of course, this check will bounce unless you do something. To prevent this, you go to the grocery the next day and cash another check for $200. You take this $200 and deposit it. You repeat this process every day, and, in doing so, you make sure that no checks bounce. Eventually, manna from heaven arrives (perhaps in the form of money from home), and you are able to cover your outstanding checks. To make it interesting, suppose you are absolutely certain that no checks will bounce along the way. Assuming this is true, and ignoring any question of legality (what we have described is probably illegal check kiting), is there anything unethical about this? If you say yes, then why? In particular, who is harmed?

The above questions are from the below text:

Ross, S., Westerfield, R., & Jordan, B. (2012). Fundamentals of corporate finance. Boston, MA: McGraw-Hill/Irwin.

Number of words inclusive of the above questions: 609 (2 pages)