Cash and treasury management practise question

PinaaaPinaaa Posts: 17Registered
I am getting confused with how the answers have come about in the attached question. Can someone please advise?

Answers:
April 196,200
May 237,075
June 400,575
July 400,575

Answers

  • ncacatncacat United KingdomPosts: 41Registered
    edited July 12
    Lets approach this step by step
    • The total purchases planned for 4 months is split equally to take advantage of the payment discount.
    • That's £1,635,000 split equally for the 4 months. £408,750 each.
    • That's the liability.
    • Now, Clifton has decided to pay only the 50% in the month of purchase.
    • April:
      • 408750 X 50% X 96% (4% discount) = £196,200
    • May:
      • 408750 X 50% X 96% (4% discount)
      • + £39240 X 100/96 (10% of April months liability but with no discount) = £237,075
    • June:
      • 408750 X 50% X 96% (4% discount)
      • + £39240 X 100/96 (10% of May months liability but with no discount)
      • + £156960 X 100/96 (40% of April months liability but with no discount) = £400,575
    • July:
      • 408750 X 50% X 96% (4% discount)
      • + £39240 X 100/96 (10% of June months liability but with no discount)
      • + £156960 X 100/96 (40% of May months liability but with no discount) = £400,575
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