Saint leo MBA560 test 7



Problem 1. Ortiz Manufacturing is considering developing
and marketing one of two new products, A and B. It has accumulated the
following information about the two products:



1) Which of these items are
relevant to Ortiz’s decision about which of these products it will

Mae Lee owns a small
retail store in Cairo, Georgia. The following summary information regarding
expectations for the month of January is provided: As of December 31 there is
$500 in the bank and the balance in accounts receivable is $2,500. Budgeted
cash and credit sales for January are $3,000 and $2,000, respectively. Ninety
percent of credit sales are collected in the month of sale and the remainder is
collected in the following month. Mae’s suppliers do not extend credit. Cash
payments for January are expected to be $12,000. Mae has a line of credit that
enables the store to borrow funds on demand. However, funds must be borrowed on
the first day of the month and interest paid in cash on the last day of the
month. Mae desires to maintain a $500 cash balance before consideration is
given to the payment of interest. Mae’s bank charges annual interest of 12% per


1) Compute the amount of funds that needs to be borrowed.

Compute the amount of interest expense that will appear on the January 31 pro
forma income statement.


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