Finance assignment – down east pharmaceuticals

Down East PharmaceuticalsKathleen Rogan of Down East Pharmaceuticals has engaged you as a consultant. Download and read the scenario. Download and use thespreadsheet for analysis.

Based on the information, do the following:

  • Develop the following first year data:
    • The company’s projected average collection period (ACP), also called days sales outstanding (DSO).
    • The company’s projected average daily sales. (Use a 360-day year.)
    • The company’s projected average receivables level.
    • The end-of-year balance sheet figures for accounts receivable and notes payable assuming that notes payable are used to finance the investment in receivables.
    • The projected annual dollar cost of carrying the receivables.
    • The receivables level at the end of March and the end of June. Note that the receivables level forecasts, and all forecasts required by the following questions, should be based on these assumptions: (a) the monthly sales forecasts given in Table 1 are realized and (b) the company’s customers pay exactly as predicted.
    • The company’s forecasted average daily sales for the first three months of operations and for the entire half year.
    • The implied ACP at the end of March and at the end of June.
    • Aging schedules at the end of March and the end of June.
  • Construct uncollected balances schedules at the end of March and at the end of June.
  • Use the uncollected balances schedule to forecast receivables levels at the ends of March and June for the second year of operations.

This data is to be presented to venture capitalists who will ask questions concerning both the interpretation of the receivables data and the sensitivity of the results to the basic assumptions. Write an interpretation of the results of your analysis.

Present your analysis as a 2-page report in a Word document formatted in APA style.

Receivables Management Case Study     A?© 2007 South University      
Down East Pharmaceuticals                
                 
Select the appropriate input values and enter them in cells colored red. Once you do this, the base case solution will appear.
                 
                 
INPUT DATA:     KEY OUTPUT:          
                 
Sales Forecasts:     Average Collection Period (Days):          
      End of March 39.6      
  Month Sales End of June 25.7      
  January $100,000            
  February 250,000 Receivables Balance:          
  March 400,000 End of March $330,000      
  April 600,000 End of June $300,000      
  May 450,000            
  June 300,000 Aging Schedules:          
        End of March End of June      
Assumed Collection Pattern:     0 – 30: 84.8% 70.0%      
      30 – 60: 15.2% 30.0%      
Month of sale 30.0% Over 60: 0.0% 0.0%      
One month after sale 50.0%            
Two months after sale 20.0% Payment Pattern:          
        End of March End of June      
      Total 90.0% 90.0%      
                 
                 
MODEL-GENERATED DATA:                
                 
Calculation of Average     End of Month        
Collection Period (ACP):     March June        
Receivables balance   $330,000 $300,000        
Average daily sales   $8,333.33 $11,666.67        
ACP     39.6 25.7        
                 
Aging Schedules:                
                 
Age of                
Account End of March End of June        
in Days A/R % A/R %        
                 
0-30 $280,000 84.8% $210,000 70.0%        
30-60 50,000 15.2% 90,000 30.0%        
60-90 0 0.0% 0 0.0%        
                 
Total $330,000 100.0% $300,000 100.0%        
                 
                 
Uncollected Balances Schedules:                
                 
End of March:                
      Accts Rec Remaining        
  Month Sales for month Rec/Sales        
                 
  January $100,000 $0 0.0%        
  February 250,000 50,000 20.0%        
  March 400,000 280,000 70.0%        
                 
    Total $330,000 90.0%        
                 
                 
End of June:                
      Accts Rec Remaining        
  Month Sales for month Rec/Sales        
                 
  April $600,000 $0 0.0%        
  May 450,000 90,000 20.0%        
  June 300,000 210,000 70.0%        
                 
    Total $300,000 90.0%        
                 
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