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Devry FINE 515 All Problem Set Latest
Devry FINE 515 Week 1 Problem set Latest
week 1
Week 1 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_1_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.
Chapter 1 (page 19)
1.
What is the most important difference between a corporation and all other organizational forms?
2.
What does the phrase limited liability mean in a corporate context?
3.
Which organizational forms give their owners limited liability?
4.
What are the main advantages and disadvantages of organizing a firm as a corporation?
5.
Explain the difference between an S corporation and a C corporation.
Chapter 2
The following is provided for use in answering the next set of questions. You may also find table 2.5 on page 53 of your text and all questions on pages 56–57.
TABLE 2.5 2009–2013 Financial Statement Data and Stock Price Data for Mydeco Corp.
Mydeco Corp. 2009–2013 | (All data as of fiscal year end; in $ million) | ||||
Income Statement | 2009 | 2010 | 2011 | 2012 | 2013 |
Revenue
Cost of Goods Sold |
404.3
(188.3) |
363.8
(173.8) |
424.6
(206.2) |
510.7
(246.8) |
604.1
(293.4) |
Gross Profit
Sales and Marketing Administration Depreciation and Amortization |
216.0
(66.7) (60.6) (27.3) |
190.0
(66.4) (59.1) (27.0) |
218.4
(82.8) (59.4) (34.3) |
263.9
(102.1) (66.4) (38.4) |
310.7
(120.8) (78.5) (38.6) |
EBIT
Interest Income (Expense) |
61.4
(33.7) |
37.5
(32.9) |
41.9
(32.2) |
57.0
(37.4) |
72.8
(39.4) |
Pretax Income
Income Tax |
27.7
(9.7) |
4.6
(1.6) |
9.7
(3.4) |
19.6
(6.9) |
33.4
(11.7) |
Net Income
Shares outstanding (millions) Earnings per share |
18.0
55.0 $0.33 |
3.0
55.0 $0.05 |
6.3
55.0 $0.11 |
12.7
55.0 $0.23 |
21.7
55.0 $0.39 |
Balance Sheet | 2009 | 2010 | 2011 | 2012 | 2013 |
Assets
Cash Accounts Receivable Inventory |
48.8
88.6 33.7 |
68.9
69.8 30.9 |
86.3
69.8 28.4 |
77.5
76.9 31.7 |
85.0
86.1 35.3 |
Total Current Assets
Net Property, Plant, and Equip. Goodwill and Intangibles |
171.1
245.3 361.7 |
169.6
169.6 243.3 |
184.5
309 361.7 |
186.1
345.6 361.7 |
206.4
347.0 361.7 |
Total Assets
Liabilities and Stockholders’ Equity Accounts Payable Accrued Compensation |
778.1
18.7 6.7 |
774.6
17.9 6.4 |
855.2
22.0 7.0 |
893.4
26.8 8.1 |
915.1
31.7 9.7 |
Total Current Liabilities
Long-term Debt |
25.4
500.0 |
24.3
500.0 |
29.0
575.0 |
34.9
600.0 |
41.4
600.0 |
Total Liabilities
Stockholders’ Equity |
525.4
252.7 |
524.3
250.3 |
604.0
251.2 |
634.9
258.5 |
641.4
273.7 |
Total Liabilities and Stockholders’ Equity | 778.1 | 774.6 | 855.2 | 893.4 | 915.1 |
Statement of Cash Flows | 2009 | 2010 | 2011 | 2012 | 2013 |
Net Income
Depreciation and Amortization Chg. in Accounts Receivable Chg. in Inventory Chg. in Payables and Accrued Comp. |
18.0
27.3 3.9 (2.9) 2.2 |
3.0
27.0 18.8 2.8 (1.1) |
6.3
34.3 (0.0) 2.5 4.7 |
12.7
38.4 (7.1) (3.3) 5.9 |
21.7
38.6 (9.2) (3.6) 6.5 |
Cash from Operations
Capital Expenditures |
48.5
(25.0) |
50.5
(25.0) |
47.8
(100.0) |
46.6
(75.0) |
54.0
(40.0) |
Cash from Investing Activities
Dividends Paid Sale (or purchase) of stock Debt Issuance (Pay Down) |
(25.0)
(5.4) — — |
(25.0)
(5.4) — — |
(100.0)
(5.4) — 75.0 |
(75.0)
(5.4) — 25.0 |
(40.0)
(6.5) — — |
Cash from Financing Activities | (5.4) | (5.4) | 69.6 | 19.6 | (6.5) |
Change in Cash | 18.1 | 20.1 | 17.4 | (8.8) | 7.5 |
Mydeco Stock Price | $7.92 | $3.30 | $5.25 | $8.71 | $10.89 |
29.
In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.
- a. Compare the gross margins for Starbucks and Peet’s.
- b. Compare the net profit margins for Starbucks and Peet’s.
- c. Which firm was more profitable in 2011?
31.
SeeTable 2.5showing financial statement data and stock price data for Mydeco Corp.
- a.How did Mydeco’s accounts receivable days change over this period?
- b.How did Mydeco’s inventory days change over this period?
- c.Based on your analysis, has Mydeco improved its management of its working capital during this time period?
32.
SeeTable 2.5showing financial statement data and stock price data for Mydeco Corp.
- a.Compare Mydeco’s accounts payable days in 2009 and 2013.
- b.Did this change in accounts payable days improve or worsen Mydeco’s cash position in 2013?
33.
SeeTable 2.5showing financial statement data and stock price data for Mydeco Corp.
- a. By how much did Mydeco increase its debt from 2009 to 2013?
- b. What was Mydeco’s EBITDA/Interest coverage ratio in 2009 and 2013? Did its coverage ratio ever fall below 2?
- c. Overall, did Mydeco’s ability to meet its interest payments improve or decline over this period?
42.
For fiscal year 2011, Starbucks Corporation (SBUX) had total revenues of $11.70 billion, net income of $1.25 billion, total assets of $7.36 billion, and total shareholder’s equity of $4.38 billion.
- a. Calculate the Starbucks’ ROE directly, and using the DuPont Identity.
- b. Comparing with the data for Peet’s in Problem 41, use the DuPont Identity to understand the difference between the two firms’ ROEs.
Berk, J., & DeMarzo, P. (2014). Corporate Finance. Boston, MA: Pearson.
Devry FINE 515 Week 2 Problem set Latest
week 2
Week 2 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_2_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.
Chapter 4 (pages 132–136):
- 3.Calculate the future value of $2000 in
- a.five years at an interest rate of 5% per year;
- b.ten years at an interest rate of 5% per year; and
- c.five years at an interest rate of 10% per year.
- d.Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?
4.What is the present value of $10,000 received
- a.twelve years from today when the interest rate is 4% per year;
- b.twenty years from today when the interest rate is 8% per year; and
- c.six years from today when the interest rate is 2% per year?
5.Your brother has offered to give you either $5,000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable?
6.Consider the following alternatives.
- i.$100 received in 1 year
- ii.$200 received in 5 years
iii. $300 received in 10 years
- a.Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.
- b.What is your ranking if the interest rate is only 5% per year?
- c.What is your ranking if the interest rate is 20% per year?
8.Your daughter is currently 8 years old. You anticipate that she will be going to college in 10 years. You would like to have $100,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3% per year, how much money do you need to put into the account today to ensure that you will have $100,000 in 10 years?
9.You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 5 years after the date of your retirement. Which alternative should you choose if the interest rate is
- a.0% per year;
- b.8% per year; and
- c.20% per year?
14.You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 1 year from now, $1,500 2 years from now, and $10,000 10 years from now.
- a.What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity?
- b.What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?
36.You are thinking of purchasing a house. The house costs $350,000. You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 7% per year. What will your annual payment be if you sign up for this mortgage?
37.You would like to buy the house and take the mortgage described in Problem 36. You can afford to pay only $23,500 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloonpayment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be?
38.You have just made an offer on a new home and are seeking a mortgage. You need to borrow $600,000.
- a.The bank offers a 30-year mortgage with fixed monthly payments and an interest rate of 0.5% per month.What is the amount of your monthly payment if you take this loan?
- b.Alternatively, you can get a 15-year mortgage with fixed monthly payments and an interest rate of 0.4% per month.How much would your monthly payments be if you take this loan instead?
*A.1. This problem is from the Appendix to Chapter 4.
Your grandmother bought an annuity from Rock Solid Life Insurance Company for $200,000 when she retired. In exchange for the $200,000, Rock Solid will pay her $25,000 per year until she dies. The interest rate is 5%. How long must she live after the day she retired to come out ahead (that is, to get more in value than what she paid in)?
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Devry FINE 515 Week 3 Problem set Latest
week 3
Week 3 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_3_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.
Chapter 7 (pages 225–228):
1.
Your brother wants to borrow $10,000 from you. He has offered to pay you back $12,000 in a year. If the cost of capital of this investment opportunity is 10%, what is its NPV? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
8.
You are considering an investment in a clothes distributor. The company needs $100,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 20%. What does the IRR rule say about whether you should invest?
19.
You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,000 and will be posted for one year. You expect that it will generate additional revenue of $500 per month. What is the payback period?
21.
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% per year for every year after that.
- a. Which investment has the higher IRR?
- b. Which investment has the higher NPV when the cost of capital is 7%?
- c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?
Chapter 8 (260–262)
1.
Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.
- a.Assume customers will spend the same amount on either version.What level of incremental sales is associated with introducing the new pizza?
- b.Suppose that 50% of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.What level of incremental sales is associated with introducing the new pizza in this case?
6.
Cellular Access, Inc. is a cellular telephone service provider that reported net income of $250 million for the most recent fiscal year. The firm had depreciation expenses of $100 million, capital expenditures of $200 million, and no interest expenses.Working capital increased by $10 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.
12.
A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $250,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $50,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored because it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $20,000.
If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
Devry FINE 515 Week 4 Problem set Latest
week 4
Week 4 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_4_Problem_Set.docx, where flastname is your first initial and your last name, and submit it to the appropriate dropbox.
Bonds-1.Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1,000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years.
Bonds-2.A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%. The bonds are currently selling for $850. What is their YTM?
Bonds-3. A certain bond pays a semiannual coupon rate at a 10% annual rate. The bond has a par value of $1,000.There are eight years to maturity. The yield to maturity is 9%. What is the current price of the bond?
Bonds-4.A particular corporate bond has a par value of $1,000. Coupon payments are $40 and are paid twice a year.Seven years are left on the life of the bond.The YTM is 9%. What is the price of the bond?
Bond-5.A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 5% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
Bond-6.A given bond has five years left to maturity. Interest is paid annually and the annual coupon rate is 9%. The par value of the bond is $1,000. The bond currently sells for $1,000. What is the yield to maturity?
Chapter 9 (pages 303–203):
1.
Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in 1 year in order to justify its current price?
5.
NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
6.
Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%?
7.
Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8%, and its dividends are expected to grow at a constant rate.
- a.What is the expected growth rate of Dorpac’s dividends?
- b.What is the expected growth rate of Dorpac’s share price?
12.
Procter & Gamble will pay an annual dividend of $0.65 1 year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to the dividend-discount model, what is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 8%?
Devry FINE 515 Week 5 Problem set Latest
week 5
Week 5 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_5_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.
Chapter 10 (pages 345–348):
4.
You bought a stock one year ago for $50 per share and sold it today for $55 per share. It paid a $1 per share dividend today.
- a.What was your realized return?
- b.How much of the return came from dividend yield and how much came from capital gain?
20.
Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $100 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Explain the difference between the type of risk each bank faces. Which bank faces less risk? Why?
22.
Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together—in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent—one stock increasing in price has no effect on the prices of other stocks. Assuming you are risk-averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.
30.
What does the beta of a stock measure?
TABLE 10.6 Betas with Respect to the S&P 500 for Individual Stocks (based on monthly data for 2007–2012)
<td.com/”>salesforce.com
Company | Ticker | Industry | Equity Beta |
General Mills | GIS | Packaged Foods | 0.20 |
Consolidated Edison | ED | Utilities | 0.28 |
The Hershey Company | HSY | Packaged Foods | 0.28 |
Abbott Laboratories | ABT | Pharmaceuticals | 0.31 |
Newmont Mining | NEM | Gold | 0.32 |
Wal-Mart Stores | WMT | Superstores | 0.35 |
Clorox | CLX | Household Products | 0.39 |
Kroger | KR | Food Retail | 0.42 |
Altria Group | MO | Tobacco | 0.43 |
Amgen | AMGN | Biotechnology | 0.44 |
McDonald’s | MCD | ||
Procter & Gamble | PG | Household Products | 0.47 |
Pepsico | PEP | Soft Drinks | 0.51 |
Coca-Cola | KO | Soft Drinks | 0.54 |
Johnson & Johnson | JNJ | Pharmaceuticals | 0.59 |
PetSmart | PETM | Specialty Stores | 0.75 |
Molson Coors Brewing | TAP | Brewers | 0.78 |
Nike | NKE | Footwear | 0.91 |
Microsoft | MSFT | Systems Software | 1.01 |
Southwest Airlines | LUV | Airlines | 1.09 |
Intel | INTC | Semiconductors | 1.09 |
Whole Foods Market | WFM | Food Retail | 1.10 |
Foot Locker | FL | Apparel Retail | 1.11 |
Oracle | ORCL | Systems Software | 1.12 |
.com/”>Amazon.com | AMZN | Internet Retail | 1.13 |
GOOG | Internet Software and Services | 1.14 | |
Starbucks | SBUX | Restaurants | 1.20 |
Walt Disney | DIS | Movies and Entertainment | 1.21 |
Cisco Systems | CSCO | Communications Equipment | 1.23 |
Apple | AAPL | Computer Hardware | 1.26 |
PulteGroup | PHM | Homebuilding | 1.28 |
Dell | DELL | Computer Hardware | 1.41 |
CRM | Application Software | 1.47 | |
.homeworkminutes.com/question/view/120567/Devry-Fin515-Week-5-Problem-Set-Latest-2015-october#”>MarriottInternational | MAR | .homeworkminutes.com/question/view/120567/Devry-Fin515-Week-5-Problem-Set-Latest-2015-october#”>Hotelsand Resorts | 1.48 |
eBay | EBAY | Internet Software and Services | 1.48 |
Coach | COH | Apparel and Luxury Goods | 1.60 |
Macy’s | M | ||
Juniper Networks | JNPR | Communications Equipment | 1.71 |
Williams-Sonoma | WSM | Home Furnishing Retail | 1.72 |
Tiffany & Co. | TIF | Apparel and Luxury Goods | 1.80 |
Caterpillar | CAT | Construction Machinery | 1.85 |
Ethan Allen Interiors | ETH | Home Furnishings | 1.95 |
Autodesk | ADSK | Application Software | 2.14 |
Harley-Davidson | HOG | Motorcycle Manufacturers | 2.23 |
Advanced Micro Devices | AMD | Semiconductors | 2.24 |
Ford Motor | F | Automobile Manufacturers | 2.38 |
Sotheby’s | BID | Auction Services | 2.39 |
Wynn Resorts Ltd. | WYNN | Casinos and Gaming | 2.41 |
United States Steel | X | Steel | 2.52 |
Saks | SKS | Department Stores | 2.57 |
Source: CapitalIQ
35.
Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data in Table 10.6 (also shown above), calculate the expected return of investing in
- a.Starbucks’ stock.
- b.Hershey’s stock.
- c.Autodesk’s stock.
Chapter 11 (pages 390–396):
2.
You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5,000 shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%.
- a.What are the portfolio weights of the three stocks in your portfolio?
- b.What is the expected return of your portfolio?
- c.Suppose the price of Apple stock goes up by $25, Cisco rises by $5, and Colgate-Palmolive falls by $13.What are the new portfolio weights?
- d.Assuming the stocks’ expected returns remain the same, what is the expected return of the portfolio at the new prices?
50.
Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the CAPM?
Chapter 12 (page 431):
26.
Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has $100 million in outstanding debt. Suppose Unida’s equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax rate is 40%.
- a.What is Unida’s unlevered cost of capital?
- b.What is Unida’s after-tax debt cost of capital?
- c.What is Unida’s weighted average cost of capital?
27.
You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 9%. However, the new business will be 25% debt financed, and you anticipate its debt cost of capital will be 6%. If its corporate tax rate is 40%, what is your estimate of its WACC?
Devry FINE 515 Week 6 Problem set Latest
Week 6
Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_6_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.
Chapter 29 (pages 983-984):
1.What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
2.What are some examples of agency problems?
3.What are the advantages and disadvantages of the corporate organizational structure?
4.What is the role of the board of directors in corporate governance?
Devry FINE 515 Week 7 Problem set Latest
week 7
Week 7 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_7_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.
Chapter 26 (page 903):
1.Answer the following questions:
- a.What is the difference between a firm’s cash cycle and its operating cycle?
- b.How will a firm’s cash cycle be affected if a firm increases its inventory, all else being equal?
- c.How will a firm’s cash cycle be affected if a firm begins to take the discounts offered by its suppliers, all else being equal?
4.The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:
THE GREEK CONNECTION
Balance Sheet As of December 31, 2012 (in $ thousand) |
|||
Assets | Liabilities and Equity | ||
Cash
Accounts receivable Inventory |
$ 2,000
3,950 1,300 |
Accounts payable
Notes payable Accruals |
$ 1,500
1,000 1,220 |
Total current assets | $ 7,250 | Total current liabilities
Long-term debt |
$ 3,720
3,000 |
Net plant, property,
and equipment |
$ 8,500 | Total liabilities
Common equity |
$ 6,720
9,030 |
Total assets | $ 15,750 | Total liabilities and equity | $ 15,750 |
- a.Calculate The Greek Connection’s net working capital in 2012.
- b.Calculate the cash conversion cycle of The Greek Connection in 2012.
- c.The industry average accounts receivable days is 30 days.What would the cash conversion cycle for The Greek Connection have been in 2012 if it had matched the industry average for accounts receivable days?
5.Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.
Chapter 27 (page 925):
- 1.Which of the following companies are likely to have high short-term financing needs? Why?
- a.A clothing retailer
- b.A professional sports team
- c.An electric utility
- d.A company that operates toll roads
- e.A restaurant chain
- 2.Sailboats Etc.is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firm’s seasonal working capital needs the greatest? When does it have surplus cash?
Month | ||||||||
($000) | 0 | 1 | 2 | 3 | 4 | 5 | 6 | |
Net Income | $10 | $12 | $15 | $25 | $30 | $18 | ||
Depreciation | 2 | 3 | 3 | 4 | 5 | 4 | ||
Capital Expenditures | 1 | 0 | 0 | 1 | 0 | 0 | ||
Levels of Working Capital | ||||||||
Accounts Receivable | $2 | 3 | 4 | 5 | 7 | 10 | 6 | |
Inventory | 3 | 2 | 4 | 5 | 5 | 4 | 2 | |
Accounts Payable | 2 | 2 | 2 | 2 | 2 | 2 | 2 |
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