MDU,A Michigan-Based General Contractor,bills Its Clients on the First of the Month.Clients

question 53

Essay

MDU,A Michigan-based general contractor,bills its clients on the first of the month.Clients traditionally pay as follows: 60% pay by the end of the first month,30% by the end of the second month,7% by the end of the third month,and 3% default on their bills.For example,a $1.00 sale made in the month of July is billed August 1st and $0.60 is paid in August,etc.The firm's CEO wants to know the anticipated cash flow for the second quarter.Use the following information to estimate second-quarter cash flows. $$\begin{array} { | l | l | l | l | l | l | } \hline &{ \text { First-Quarter Actual Sales } } & && { \text { Second-Quarter Anticipated Sales } } \\\hline \text { Month } & \text { January } & \text { February } & \text { March } & \text { April } & \text { May } & \text { June } \\\hline \text { Sales } & \$ 400,000 & \$ 250,000 & \$ 475,000 & \$ 625,000 & \$ 825,000 & \$ 825,000 \\\hline\end{array}$$

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Definitions:

Savings Account

A deposit account held at a bank or other financial institution that provides modest interest income.

Daily Closing Balance

The total amount of money in an account at the end of the trading day, reflecting all transactions processed that day.

Simple Interest Rate

A method of calculating interest where the interest charge is based on the original principal only.

Payments

Transfers of money in exchange for goods or services or as fulfillment of obligations under a contract.