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Forums › ACCA Forums › ACCA FM Financial Management Forums › JOINT PROBABILITIES…THIS BPP QUESTION IS BIT CONFUSING
ZSE Co is concerned about exceeding its overdraft limit of $2m in the next two periods. It has been experiencing considerable volatility in cash flows in recent periods because of trading difficulties experienced by its customers, who have often settled their accounts after the agreed credit period of 60 days. ZSE has also experiences an increase in bad debts due to a small number of customers going into liquidation.
The company has prepared the following forecasts of net cash flows for the next two periods, together with their associated probabilities, in an attempt to anticipate liquidity and financing problems. These probabilities have been produced by a computer model which simulates a number of possible future economic scenarios. The computer model has been built with the aid of a firm of financial consultants.
Period 1 cash flow Probability
$’000
8,000 10%, 4,000 60%, -2000 30%
Period 2 cash flow PROBABILITY
7000 30% 3000 50% -9000 20%
ZSE Co expects to be overdrawn at the start of period 1 by $500,000. Required
(a) Calculate the following:
(i) The expected value of the period 1 closing balance
(ii) The expected value of the period 2 closing balance
(iii) The probability of a negative cash balance at the end of period 2
(iv) The probability of exceeding the overdraft limit at the end of period 2
Discuss whether the above analysis can assist the company in managing its cash flows.
part 1 and 2 some how I did and accumulative answer of period 1 n 2 is 3.9 million but part 3 and 4 is confusing.. in BPP its giving concept of joint probabilities
See this question worked through by OpenTuition at https://opentuition.com/acca/f9/acca-f9-revision-june-2010-question-1-zse/