You must be a registered user and login to this site before practicing questions on this software. 
Use user login form to login or to request for new account. 
Use contact form if you require further assistance on this issue.

ZSE Co is concerned about exceeding its overdraft limit of $2 million in the next two periods. It has been experiencing considerable volatility in cash flows in recent periods because of trading difficulties experienced by its customers, who have often settled their accounts after the agreed credit period of 60 days. ZSE has also experiences an increase in bad debts due to a small number of customers going into liquidation. 

The company has prepared the following forecasts of net cash flows for the next two periods, together with their associated probabilities, in an attempt to anticipate liquidity and financing problems. These probabilities have been produced by a computer model which simulates a number of possible future economic scenarios. The computer model has been built with the aid of a firm of financial consultants.

Period 1 cash flow Probability Period 2 cash flow probability
$'000   $'000  
8,000 10% 7,000 30%
4,000 60% 3,000 50%
(2,000) 30% (9,000) 20%

ZSE Co expects to be overdrawn at the start of period 1 by $500,000.

Requirements:

a

Calculate the following:

(i)               The expected value of the period 1 closing balance;

(ii)              The expected value of the period 2 closing balance;

(iii)              The probability of a negative cash balance at the end of period 2;

(iv)              The probability of exceeding the overdraft limit at the end of period 2.

Marks: 9
b

Discuss whether the analysis done in requirement (a) can assist the company in managing its cash flows

Marks: 3
c

Identify and discuss the factors to be considered in formulating a trade receivables management policy for ZSE Co.

Marks: 8

Answers submitted

Created by Ref Marking Action
Rakhi Gupta's picture
Rakhi Gupta
10/16/2020 - 13:44
a
9826
9
Rakhi Gupta's picture
Rakhi Gupta
10/16/2020 - 14:14
c
9828
8
Apurba nandy's picture
Apurba nandy
03/03/2020 - 02:33
a
8982
9
Kamrunnahar Takia's picture
Kamrunnahar Takia
02/19/2020 - 21:29
a
8718
9
Kamrunnahar Takia's picture
Kamrunnahar Takia
02/19/2020 - 21:38
b
8724
3
Md Ishtiak Isty's picture
Md Ishtiak Isty
02/19/2020 - 21:29
a
8710
9
Md Ishtiak Isty's picture
Md Ishtiak Isty
02/19/2020 - 21:40
b
8734
3
Md Ishtiak Isty's picture
Md Ishtiak Isty
02/19/2020 - 21:58
c
8744
8
MD. Ohidur Rahman's picture
MD. Ohidur Rahman
02/19/2020 - 21:30
a
8722
9
MD. Ohidur Rahman's picture
MD. Ohidur Rahman
02/19/2020 - 21:41
b
8732
3
MD. Ohidur Rahman's picture
MD. Ohidur Rahman
02/19/2020 - 22:02
c
8746
8
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/19/2020 - 21:29
a
8714
9
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/19/2020 - 21:40
b
8728
3
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/19/2020 - 21:56
c
8740
8
Md. Tariful Mursalin Rifat's picture
Md. Tariful Mur...
02/19/2020 - 21:29
a
8720
9
Md. Tariful Mursalin Rifat's picture
Md. Tariful Mur...
02/19/2020 - 21:42
b
8736
3
Md. Tariful Mursalin Rifat's picture
Md. Tariful Mur...
02/19/2020 - 22:02
c
8748
8