A Company Has Forecast Sales in the First Three Months

question 32

Multiple Choice

A company has forecast sales in the first three months of the year as follows (figures in millions) : January, $90; February, $20; March, $30.Seventy percent of sales are usually paid for in the month that they take place and 30 percent in the following month.Receivables at the end of December were $20 million.What are the forecasted collections on accounts receivable in March?

• A)$27 million
• B)$50 million
• C)$23 million
• D)$35 million

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Definitions:

Sensitivity Analysis

A financial modeling tool used to evaluate how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project.

IRR

Internal Rate of Return, a financial metric used to estimate the profitability of potential investments.

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent or salaries.