Question

Myers and Associates, a famous law office in California, bills its clients on the first of each month. Clients pay in the following fashion: 40% pay at the end of the first month, 30% pay at the end of the second month, 20% pay at the end of the third month, 5% pay at the end of the fourth month, and 5% default on their bills. Myers wants to know the anticipated cash flow for the first quarter of 2009 if the past billings and anticipated billings follow this same pattern. The actual and anticipated billings are as follows. Fourth Quarter Actual Billings First Quarter Anticipated Billings Oct. Nov. Dec. Jan. Feb. Mar. $392,000 $323,000 $296,000 $340,000 $360,000 $408,000

Answer 1

Anticipated billings:

(In $)

Month	Billings
October 2008	392,000
November 2008	323,000
December 2008	296,000
January 2009	340,000
February 2009	360,000
March 2009	408,000

Anticipated cash flows:

(In $)

	January	February	March	Total
Cash collections:
40% of current month billing	40%(340,000) 136,000	40%(360,000) 144,000	40%(408,000) 163,200	443,200
30% of previous month billing	30%(296,000) 88,800	30%(340,000) 102,000	30%(360,000) 108,000	298,800
20% of two months back billing	20%(323,000) 64,600	20%(296,000) 59,200	20%(340,000) 68,000	191,800
5% of three months back billing	5%(392,000) 19,600	5%(323,000) 16,150	5%(296,000) 14,800	50,550
	309,000	321,350	354,000	984,350