Question: If a firm’s inventory turnover ratio

> How many possible IRRs could you find for the following set of cash flows? Time 1 | 3 Cash Flow -$11,000 $3,350 $4,180 $1,520 $2,000

> Compute the PI statistic for Project Q and tell whether you would accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. Project Q 1 Cash Flow -$11,000 $3,350 $4,180 $1,520 $2,000 Time 2 3

> Compare and contrast the use of pro forma financial statements in corporate financial planning with their use in accounting.

> Compute the PI statistic for Project Z for and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8 percent. Project Z Time 1 2 3 4 5 Cash Flow -$1,000 $350 | $480 | $650

> Compute the IRR statistic for project F and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. Project F Time 1 2 3 4 Cash Flow -$11,000 $3,350 $4,180 $1,52

> Compute the IRR statistic for Project E and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8 percent. Project E Time 1 2 3 4 5 Cash Flow -$1,000 $350 | $480 | $520

> Compute the discounted payback statistic for Project D and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback i

> Compute the payback statistic for Project A and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8 percent and the maximum allowable payback is four years. Project A

> Compute the payback statistic for Project B and decide whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable payback is three years. Project B

> Compute the NPV statistic for Project K and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is six percent. Project K Time 1 2 3 4 Cash Flow -$10,000 | $5,000 $6,0

> Compute the NPV statistic for Project U and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is ten percent. Project U Time 1 2 3 4 Cash Flow -$1,000 | $350 $1,480

> Compute the NPV statistic for Project Y and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. Project Y Time 1 2 4 Cash Flow -$8,000 $3,350 $4,180 $1,520 |

> Compute the MIRR statistic for Project I and tell whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. Project I Time 1 2 4 Cash Flow -$11,000 $5,330 | $4,180 | $1,520 $2,000

> How will passive and active capital structure changes differ?

> Compute the discounted payback statistic for Project C and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8 percent and the maximum allowable discounted payback is

> Compute the MIRR statistic for Project J and advise whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Project J Time 1 2 3 4 Cash Flow -$1,000 $350 $1,480 -$520 $300 -$100

> Construct an NPV profile and determine EXACTLY how many nonnegative IRRs you can find for the following set of cash flows: Time 1 2 3 4 5 6 7 Cashflow -150 275 150 -100 300 -300 200 -300

> Construct an NPV profile and determine EXACTLY how many nonnegative IRRs you can find for the following set of cash flows: Time 2 3 4 5 6 7 Cashflow -200 400 150 -100 -100 -300 200 -300

> For what range of possible interest rates would you want to use IRR to choose between these two projects? For what range of rates would you NOT want to use IRR?

> Graph the NPV profiles for both projects on a common chart, making sure that you identify all of the “crucial” points.

> Suppose a company faced different borrowing and lending rates. How would this range change the way that you would compute the MIRR statistic?

> Suppose a company wanted to double their firm’s value with the next round of capital budgeting project decisions. To what would they set the PI benchmark to make this goal?

> If you had two mutually exclusive, normal-cash-flow projects whose NPV profiles crossed at all points, for which range of interest rates would IRR give the right accept/reject answer?

> Could a project’s MIRR ever exceed its IRR?

> Following stocks in a portfolio is easier than ever. Many financial Web sites have the capability to follow the stocks in your portfolio over time. Just enter your stocks, the number of shares, your purchase price, and your commission cost and you can s

> Under what circumstances could payback and discounted payback be equal?

> Suppose that your company used “APV,” or “All-the-Present Value-Except-CF0”, to analyze capital budgeting projects. What would this rule’s benchmark value be?

> Is it possible for a company to initiate two products that target the same market that are not mutually exclusive?

> Is the set of cash flows depicted in the following table normal or non-normal? Explain. 2 3 Cash Flow -S100 -S50| -S80 | so s100 | $100 Time 0 1 4 5

> Derive an accept/reject rule for IRR similar to equation 13-8 that would make the correct decision on cash flows that are non-normal, but that always have one large positive cash flow at time zero followed by a series of negative cash flows: Time 0 1

> What purpose does a discount on credit terms serve? What is the cost of such a discount to the offering firm?

> From our discussion of capital markets elsewhere in this book, why would you expect a firm to have a time delay between raising funds to finance a project and the expenditure of those funds on that project?

> Would a draft have availability float? Why or why not?

> Could a firm ever have negative disbursement float? Why or why not?

> Could a firm ever have negative collection float? Why or why not?

> Investors can choose from many thousands of stocks. The large number to choose from can be quite daunting to new investors. Fortunately, some good stock screeners are available for free on the Internet that will find only the kinds of companies the inves

> What effect will an increase in the standard deviation of daily cash flows have on the return point in the Miller-Orr model? Why?

> What effect will increasing the trading costs associated with selling marketable securities have on the optimal replenishment level in the Baumol model? Why?

> If a firm needs to keep a minimum cash balance on hand and faces both cash inflows and outflows, which of the cash management models discussed in this chapter would be more appropriate for them to use?

> What would be the shortage costs associated with a restaurant not having enough cash on hand to make change?

> What will be the shortage cost associated with a compensating balance requirement?

> What will be the carrying cost associated with a compensating balance requirement?

> Is an increase in the cash account a source of funds or a use of funds?

> If asset-backed loans are cheaper than unsecured loans, what is the disadvantage to the firm in using an asset-backed loan?

> Suppose that short-term borrowing actually becomes more expensive than long-term borrowing. How would this affect the firm’s choice between a flexible financing policy and a restrictive policy?

> Would a firm ever use short-term debt to finance permanent current assets? Why or why not?

> Using beta as a risk measure has been fully integrated into corporate finance and the investment industry. You can obtain a beta for most companies at many financial Web sites. Sites that list a beta include: MSN Money (in the Company Report section), Ya

> Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm’s profitability?

> If a firm’s inventory turnover ratio increases, what will happen to the firm’s cash cycle?

> Would it be possible for a firm to have a negative cash cycle? How?

> Which of the following will result in an increase in net working capital?

> Would it be possible for a decision to deny credit to your customers be value maximizing? How?

> Is it possible for a firm to have negative net working capital? How?

> Go to the SEC’s Edgar site at http://www.sec.gov/edgar.shtml and download the latest annual (“10-K”) report for the firm of your choice. Use the financial statements in the report to calculate the firm’s cash cycle.

> Your bank offers you a $140,000 line of credit with an interest rate of 2.30 percent per quarter. The loan agreement also requires that 7 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating ba

> Veggie Burgers, Inc., would like to maintain their cash account at a minimum level of $245,000, but expect the standard deviation in net daily cash flows to be $12,000, the effective annual rate on marketable securities to be 4.7 percent per year, and th

> Using the information in the table, compute the required return for each company using both CAPM and the constant growth model. Compare and discuss the results. Assume that the market portfolio will earn 11 percent and the risk-free rate is 4 percent.

> HotFoot Shoes would like to maintain their cash account at a minimum level of $25,000, but expect the standard deviation in net daily cash flows to be $4,000, the effective annual rate on marketable securities to be 6.5 percent per year, and the trading

> Watkins Resources faces a smooth annual demand for cash of $1,500,000, incurs transaction costs of $75 every time they sell marketable securities, and can earn 3.7 percent on their marketable securities. What will be their optimal cash replenishment leve

> Rose Axels faces a smooth annual demand for cash of $5,000,000, incurs transaction costs of $275 every time they sell marketable securities, and can earn 4.3 percent on their marketable securities. What will be their optimal cash replenishment level?

> Suppose that LilyMac Photography has annual sales of $230,000, cost of goods sold of $165,000, average inventories of $4,500, and average accounts receivable of $25,000. Assuming that all of LilyMac’s sales are on credit, what will be the firm’s operatin

> Suppose that Dunn Industries has annual sales of $2,300,000, cost of goods sold of $1,650,000, average inventories of $1,116,000, and average accounts receivable of $750,000. Assuming that all of Dunn’s sales are on credit, what will be the firm’s operat

> Veggie Burgers, Inc., would like to maintain their cash account at a minimum level of $245,000, but expect the standard deviation in net daily cash flows to be $12,000, the effective annual rate on marketable securities to be 3.7 percent per year, and th

> Suppose your firm is seeking a four-year, amortizing $200,000 loan with annual payments and your bank is offering you the choice between a $205,000 loan with a $5,000 compensating balance and a $200,000 loan without a compensating balance. If the interes

> Suppose your firm is seeking an eight-year, amortizing $800,000 loan with annual payments and your bank is offering you the choice between an $850,000 loan with a $50,000 compensating balance and an $800,000 loan without a compensating balance. If the in

> Suppose that the Ken-Z Art Gallery has annual sales of $870,000, cost of goods sold of $560,000, average inventories of $244,500, average accounts receivable of $265,000, and an average accounts payable balance of $79,000. Assuming that all of Ken-Z’s sa

> Suppose that LilyMac Photography has annual sales of $230,000, cost of goods sold of $165,000, average inventories of $4,500, average accounts receivable of $25,000, and an average accounts payable balance of $7,000. Assuming that all of LilyMac’s sales

> Using the information in the table, compute the required return for each company using both CAPM and the constant growth model. Compare and discuss the results. Assume that the market portfolio will earn 12 percent and the risk-free rate is 3.5 percent.

> Why might a firm announce a reverse stock split?

> Why is it that an organization’s values and norms can become too strong and lead to unethical behavior?

> What steps can a company take to prevent this problem—to stop its values and norms from becoming so inwardly focused that managers and employees lose sight of their responsibility to their stakeholders?

> What are the main determinants of business ethics?

> As an employee of a company, what are some of the most unethical business practices that you have encountered in its dealing with stakeholders?

> Why should managers use ethical criteria to guide their decision making?

> Why do the claims and interests of stakeholders sometimes conflict?

> If you could give your manager one piece of advice or change one management practice in the organization, what would it be?

> Why are workers who test positive for HIV sometimes discriminated against?

> Choose a Fortune 500 company not mentioned in the chapter. Conduct research to determine what steps this organization has taken to effectively manage diversity and eliminate sexual harassment.

> Why do you think there is a lack of diversity in the biotech industry?

> What are some steps that decision makers and managers in the health sciences can take to increase diversity?

> In what ways might stereotypes and biases contribute to a lack of diversity in the biotech industry?

> What is the relationship between ethics and the law?

> What could you or the person who was treated unfairly have done to improve matters and rectify the injustice on the spot?

> Was the decision maker aware that he or she was acting unfairly?

> In what ways, if any, were biases, stereotypes, or overt discrimination involved in this situation?

> Why do you think that the decision maker acted unfairly in this situation?

> Was any sexual harassment involved in this situation? If so, what kind was it?

> How attuned are the mangers in the organization to the need to increase efficiency, quality, innovation, or responsiveness to customers? How well do you think the organization performs its prime goals of providing the goods or services that customers wan

> If you had authority over the decision maker (that is, if you were his or her manager or supervisor), what steps would you take to ensure that the decision maker stops treating people unfairly?

> Why can you chew gum on the street but not in a church?

> What makes chewing gum acceptable in the United States and unacceptable in Singapore?

> How can you use ethical principles to decide when gum chewing is ethical or unethical and if and when it should be made illegal?

> Find an example of (a) a company that has an obstructionist approach to social responsibility and (b) one that has an accommodative approach.

> Select a company on the list and go to that company’s web page. How would you describe the company’s organizational ethics?

> What do you believe are the occupational ethics of the people who work at the company?

> Do you think it was unethical that the attendees tweeted out information about the new drug and results of the study? Why or why not?

> Suppose you were the marketing director at a pharmaceutical company that had just received promising results about a new drug still in the development stage. What ethical responsibilities do you have to keep the information confidential?

> How have social media platforms such as Twitter and Facebook changed the discussion about confidentiality and social responsibility? Explain.

> You sign a contract to manage a young rock band, and that group agrees to let you produce their next seven records, for which they will receive royalties of 5%. Their first record is a smash hit and sells millions. Do you increase their royalty rate on f

> You’re the manager of sales in an expensive sports car dealership. A young executive who has just received a promotion comes in and wants to buy a car that you know is out of her price range. Do you encourage the executive to buy it so you can receive a