Rawhide Outfitters Had Projected Its Sales for the First Six

question 104

Multiple Choice

Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows: Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2012 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists) .Fielding has no short-term borrowing as of March 1st,2012.Assume that the interest rate on short-term borrowing is 1% per month.How much short term financing is needed by March 30,2012?

• A)$110,000
• B)$15,000
• C)$70,000
• D)$85,000

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Definitions:

Futures Contracts

Standard legal contracts for purchasing or selling a certain commodity or financial instrument at an agreed upon price at a future date.

Financial Risk

The possibility of losing money on an investment or business venture due to factors like market volatility or borrower default.

Iron Ore

A rock from which metallic iron can be economically extracted.

Copper

A metal element with high thermal and electrical conductivity, widely used in electrical wiring and construction.