Redo Problem number 14, using the monthly sales estimates listed in the text. Data from Problem 14: Of its monthly sales, The Kingsman Company historically has had 25-percent cash sales with the remainder paid within one month. Each month’s purchases are equal to 75 percent of the next month’s sales forecast; suppliers are paid one month after the purchase. Salary expenses are $50,000 a month, except in January when bonuses equal to 1 percent of the previous year’s sales are paid out. Interest on a bond issue of $10,000 is due in March. Overhead and utilities are expected to be $25,000 monthly. Dividends of $45,000 are to be paid in March. Kingsman’s 2017 sales totaled $2 million; December sales were $200,000. Kingsman’s estimated sales for January are $100,000; February, $200,000; March, $250,000, and April, $300,000. a. What are Kingsman’s expected monthly cash inflows during January through April? b. What are Kingsman’s expected monthly cash outflows during January through April? c. Determine Kingman’s monthly cash budget for January through April. Assume a minimum desired cash balance of $40,000 and an ending December cash balance of $50,000.
> Following are components of the M1 money supply at the end of last year. What will be the size of the M1 money supply at the end of next year if currency grows by 10 percent, demand deposits grow by 5 percent, other checkable deposits grow by 8 percent,
> Determine the size of the demand deposits component of the M1 money supply using the following information. Currency…………………………………………..$350 million Traveler’s checks………………………………..$10 million Other checkable deposits………………….$200 million Small time deposit
> Determine the size of the M1 money supply using the following information. Currency………………………………………………..$700 billion Money market mutual funds ………………..$2,000 billion Demand deposits……………………………………$300 billion Other checkable deposits…………………………$300 billion
> Determine the size of the M1 money supply using the following information. Currency plus Traveler’s checks………………..$25 million Negotiable CDs………………………………………..$10 million Demand deposits……………………………………..$13 million Other checkable deposits…………………………..$12 m
> You are considering becoming a franchisee with the Kopy-Kopy Copy and Pizza Delivery Service. For $50,000, they give you training and exclusive territorial rights. Equipment can be purchased through the home office for an additional $50,000, all of which
> 1. What does the risk-return finance principal imply? a. Higher returns are expected for taking on more risk b. Lower returns are expected for taking on more risk c. Money has a time value d. Default risk premiums are zero 2. If the risk free rate
> Annual savings from Project X include a reduction in ten clerical employees with annual salaries of $15,000 each, $8,000 from reduced production delays, $12,000 from lost sales due to inventory stock outs, and $3,000 in reduced utility costs. Project X c
> The following is a simplified project income statement for Ma & Pa Incorporated. The project is expected to last for eight years. Its up-front cost is $2,000. Its cost of capital is 12 percent. Sales…………………………………………………..……$ 925.00 – cash expenses…………………
> The Brassy Fin Pet Shop is considering an expansion. Construction will cost $90,000 and will be depreciated to zero, using straight-line depreciation, over five years. Earnings before depreciation are expected to be $20,000 in each of the next five years
> Use the information in Problem 10 to do the following: a. Calculate the payback period for the machine. b. If the project’s cost of capital is 10 percent, would you recommend buying the machine? c. Estimate the internal rate of return for the machine. D
> A machine can be purchased for $10,500 including transportation charges, but installation costs will require $1,500 more. The machine is expected to last four years and produce annual cash revenues of $6,000. Annual cash-operating expenses are expected t
> Find the NPV and PI of a project that costs $1,500 and returns $800 in Year 1 and $850 in Year 2. Assume the project’s cost of capital is 8 percent.
> Construct a spreadsheet that computes the effective annual rates on the commercial paper offerings. Inputs to the spreadsheet should include the dollar amount of paper to be issued, the number of days the paper is outstanding, the stated annual rate, and
> Compute the effective annual rates of the following: a. $1 million maturing in 90 days with a stated annual rate of 6 percent. Fees are 0.02 percent of the principal. b. $15 million maturing in 60 days with a stated annual rate of 7.6 percent. Fees are 0
> Bank A offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. You wish to obtain $250,000 in a six-month loan. a. How much must you borrow in order to obtain $250,000 in usable funds? Assume you currently do not have any
> Your firm needs to raise funds for inventory expansion. a. What is the effective annual rate on a loan of $150,000 if it is discounted at a 12 percent stated annual rate and it matures in five months? b. How much must you borrow in order to obtain usabl
> 1. Inflation is best described as which of the following? a. Increase in the price of goods or services that is offset by an increase in quality b. Increase in the price of goods or services that is not offset by an increase in quality c. Decrease in
> What conclusions can you make about credit terms from reviewing your answers to Problem 4? Data from Problem 4: Compute the effective cost of not taking the cash discount under the following trade credit terms: a. 2/10 net 40 b. 2/10 net 50 c. 3/10 net
> Compute the effective cost of not taking the cash discount under the following trade credit terms: a. 2/10 net 40 b. 2/10 net 50 c. 3/10 net 50 d. 2/20 net 40
> Obtain a current issue of the Federal Reserve Bulletin, or review of copy from the Fed’s Web site (www.federalreserve.gov) or the St. Louis Fed’s Web site (www.stlouisfed.org), and determine the changes in the prime rate that have occurred since the end
> Comfin Company has the following estimates on its level of current and total assets for the next two years (presented in text): a. Estimate the levels of permanent and temporary current assets for Comfin over these months. Find the average amount for fix
> Assume that you have been offered cash discounts on merchandise that can be purchased from either of two suppliers. Supplier A offers trade credit terms of 3/20, net/70, while Supplier B offers 4/15, net/80. What is the approximate effective cost of miss
> Which of the following offer the lowest effective rate for Wolf Howl jackets? Assume Wolf Howl will need to borrow $800,000 for 180 days. a. A 14% APR bank loan b. A 13% APR, discounted bank loan. c. 12.5% APR with fees of 1% for receivables financing. d
> CDRW is evaluating an inventory financing arrangement with DVD Banks. CDRW estimates an average monthly inventory balance of $800,000. DVD Bank is offering a 12 percent APR loan on 75 percent of the value of the inventory. DVD’s inventory storage and eva
> Beckheart is seeking financing for its inventory. Safe-proof Warehouses offers space in their facility for Beckheart’s inventory. They offer loans with a 15-percent APR equal to 60% of the inventory. Monthly fees for the usage of the warehouse are $500 p
> Montcalm Enterprises is seeking bids on short-term loans with area banks. It expects its average outstanding borrowings to equal $320,000. Which of the following terms offers Montcalm the lowest effective rate? Town Bank: revolving credit agreement for $
> Bank Two wants to attract Michael’s Computers, Inc. to become a customer. Their sales force contacts Michael’s and offers them line of credit financing. The credit line will be for $500,000 with a one-month “clean-up” period. The APR on borrowed funds is
> 1. The relationship between interest rates and the time to maturity for debt instruments of comparable quality is called which of the following? a. Default risk premium b. Liquidity premium c. Term structure of interest rates d. Term structure of non
> Michael’s Computers’ local bank offers the firm a 12-month revolving credit agreement of $500,000. The APR of the revolver is 12 percent with a commitment fee of 0.5% on the unused portion. Over the course of a year, Michael’s chief financial officer bel
> Michael’s Computers is evaluating proposals from two different factors who will provide receivables financing. Big Fee Factoring will finance the receivables at an APR of 8 percent, discounted, and charges a fee of 4 percent. High Rate Factoring offers a
> Wonder Dog Leash Company is seeking to raise cash and is in negotiation with Big Bucks finance company to pledge their receivables. BB is willing to loan funds against 75% of current (that is, not overdue) receivables at a 15% annual percentage rate (see
> Wonder Dog Leash Company is examining their accounts receivable patterns. Wonder’s customers are offered terms of 1/10 net 30. Of their receivables, $150,000 are current, $75,000 are one-month overdue, $30,000 are two-months overdue, and $20,000 are over
> A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within 10 days; otherwise the bill is due at the end of 60 days. Would you recommend borrowing from a bank at an 18 percent annual interest rate in order to take adva
> Genatron Manufacturing expects its sales to increase by 10 percent in 2018. Estimate the firm’s investment in accounts receivable, inventory, and accounts payable in 2018.
> Financial statements for the Genatron Manufacturing Corporation for the years 2016 and 2017 are listed in the text. Calculate Genatron’s operating cycle and cash conversion cycle for 2016 and 2017. Why did they change between 2016 and 2017?
> Robinson expects its 2018 sales and cost of goods sold to grow by 20 percent over their 2017 levels. a) What will be the effect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2017 le
> Robinson expects its 2018 sales and cost of goods sold to grow by 5 percent over their 2017 levels. a) What will be the effect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2017 le
> Given Robinson’s 2016 and 2017 financial information presented in problems 3 and 4, a) Compute its operating and cash conversion cycle in each year. b) What was Robinson’s net investment in working capital each year? Data from Problem 3: The Robinson
> 1. The risk-free interest rate is made up of which of the following components in addition to a real rate of interest? a. Inflation premium b. Default risk premium c. Market risk premium d. Liquidity premium 2. Which of the following Treasury secur
> 1. Which one of the following is not a real asset? a. Land and buildings b. Equipment and inventories c. Precious metals d. Equity securities 2. Purchasing power is the a. amount of goods or services that can be purchased with a unit of money. b.
> Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2016 and $1,200,000 in 2017. a. Calculate the inventory turnover for each year. Comment on your findings. b. What would have been the amount of inventories in 2017 if the 2016 turnove
> The Robinson Company from Problem 2 had net sales of $1,200,000 in 2016 and $1,300,000 in 2017. a. Determine the receivables turnover in each year. b. Calculate the average collection period for each year. c. Based on the receivables turnover for 2016, e
> Genatron Manufacturing (from problem 8) is considering changing its credit standards. Analysis shows that sales may fall 5 percent from 2017 levels with no bad debts from the change in sales. The cost of financing the increase in current assets is 8 perc
> Robinson Company has a 2017 profit margin of 5 percent. They are examining the possibility of loosening their credit policy. Analysis shows that sales may rise 10 percent while bad debts on the change in sales will be 2 percent. The cost of financing the
> The Robinson Company has the current assets and current liabilities for the two years listed in the text. If sales in 2016 were $1.2 million and sales in 2017 were $1.3 million, and cost of goods sold were 70 percent of sales, how long were Robinson’s op
> Pa Bell, Inc., wants to increase its credit standards. They expect sales will fall by $50,000 and bad-debt expense will fall by 10 percent of this amount. The firm has a 15 percent profit margin on its sales. The tougher credit standards will lower the f
> Mattam Corporation’s year sales are $5 million and its average collection period is 32 days. Only 10 percent of sales are for cash and the remainder is credit sales. a. What is Mattam’s investment in accounts receivable? b. If Mattam extends its credit
> CD Later’s projected sales for the first four months of 201X are January……………………………………………….$60,000 February………………………………………………$55,000 March …………………………………………………$65,000 April…………………………………………………….$70,000 The firm expects to collect 10 percent of sales in c
> Using the information provided in problem 14, construct cash budgets from each of the following scenarios. Use the data from problem 14 as the “base case.” What insights do we obtain from a cash budget scenario analysis? a. Best case: sales are 10-percen
> 1. The risk-free interest rate can be expressed as a function of which of the following? a. Real rate of interest and the inflation premium b. Real rate of interest, inflation premium, and the default risk premium c. Deflation premium, real rate of in
> Of its monthly sales, The Kingsman Company historically has had 25-percent cash sales with the remainder paid within one month. Each month’s purchases are equal to 75 percent of the next month’s sales forecast; suppliers are paid one month after the purc
> Eastnorth’s suppliers are upset that Eastnorth takes two months to pay their accounts payable; they demand that in the following year Eastnorth pay its bills within 30 days, or one month after the purchase. a. Using this new information, update Eastnorth
> Suppose Eastnorth Manufacturing is planning to change its credit policies next year. It anticipates that 10 percent of each month’s sales will be for cash; two-thirds of each month’s receivables will be collected in the following month, and one-third wil
> In problem 10, we assumed the current asset and liability accounts decrease proportionately with Genatron’s sales. This is probably unrealistic following a decline in sales. What will be the impact on the working capital accounts if its collection period
> With concerns of increased competition, Genatron is planning in case its 2018 sales fall by 5 percent from their 2017 levels. If cost of goods sold and the current asset and liability accounts decrease proportionately, a) Calculate the 2018 cash convers
> Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40-days cred
> Rework Problem 8 assuming that Genatron Manufacturing expects its sales to increase by 20 percent in 2018. What is the amount of external financing needed? Data from Problem 8: Genatron Manufacturing expects its sales to increase by 10 percent in 2018.
> Genatron Manufacturing expects its sales to increase by 10 percent in 2018. Estimate the firm’s external financing needs by using the percent-of-sales method for the 2017 data. Assume that no excess capacity exists and that one-half of the 2017 net incom
> This problem uses the financial statements for the Genatron Manufacturing Corporation for the years 2017 and 2016 from Problem 6. a. Calculate Genatron’s dollar amount of net working capital in each year. b. Calculate the current ratio and the acid-test
> Financial statements for the Genatron Manufacturing Corporation for 2017 and 2016 are shown in the text. a. Apply Du Pont analysis to both the 2017 and 2016 financial statements’ data. b. Explain how financial performance differed between 2017 and 2016.
> 1. What is the price of loanable funds in financial markets called? a. Interest rate b. Disequilibrium interest rate c. Supply of loanable funds d. Demand for loanable funds 2. Which of the following time periods was associated with decreasing/low
> Selected financial data in thousands of dollars for the Hunter Corporation are listed in the text. a. Calculate Hunter’s rate of return on total assets in 2017 and in 2016. Did the ratio improve or worsen? b. Diagram the expanded Du Pont system for Hunte
> Next year, Allgreens expects its sales to reach $33,000 with an investment in total assets of $10,750. Net income of $1,225 is anticipated. This year, sales were $30,000, total assets were $9,900, and net income was $1,000. Last year, these figures were
> The Dayco Manufacturing Company had the following financial statement results for last year. Net sales were $1.2 million with net income of $90,000. Total assets at year end amounted to $900,000. a. Calculate Dayco’s asset turnover ratio and its profit m
> Using your estimate for the degree of operating leverage for Genatron in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 6, determine Genatron’s degree of operating leverage in each of the years presented. Assume the cost of goods sold and marketing expenses are variable costs and all other costs are fixed. Data from Pro
> Using your estimate for the degree of operating leverage for Global in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 12, determine Global Manufacturing’s degree of operating leverage in each of the years presented. Assume the cost of goods sold are variable costs and all other costs are fixed. Data from problem 12:
> Using Global Manufacturing’s financial statements in problem 12, estimate their external financing needs if 10-percent growth in sales is expected and the firm pays out half of its earnings as dividends. 1. Forecast the dollar amount of expected sales in
> Using the data in the chapter, estimate Walgreen’s external financing needs if a 20-percent growth rate is expected. 1. Forecast the dollar amount of the expected sales increase: 2. Determine the dollar amount of new asset investment necessary to support
> The Jackman Company had sales of $1,000,000 and net income of $50,000 last year. Sales are expected to increase by 20 percent next year. Selected year-end balance sheet items were: Current assets = $400,000; Fixed assets = $500,000; Total assets = $900,0
> 1. When were the “seeds” that culminated in the 2007-08 financial crisis sown? a. At the beginning of the 1970s b. During the 1980s c. In the early 1990s d. At the beginning of the decade of the 2000s 2. What was the personal savings rate during th
> The Robinson Company had a cost of goods sold of $1,000,000 in 2016 and $1,200,000 in 2017. a. Calculate the inventory turnover for each year. Comment on your findings. b. What would have been the amount of inventories in 2017 if the 2016 turnover ratio
> This problem uses the two years of financial statements data provided in Problem 6 for the Genatron Manufacturing Corporation. a. Calculate and compare each current assets account as a percentage of total assets for that year. b. Calculate and compare ea
> Graph the revenue and cost lines to estimate the break-even point for the following data. Compute the break-even point mathematically. a. price = $12.95; variable cost/unit = $6.89; fixed costs = $10,000 b. price = $23, 995; variable cost/unit = $16,545;
> Associated Containers Company is planning to manufacture and sell plastic pencil holders. Direct labor and raw materials will be $2.28 per unit. Fixed costs are $15,300 and the expected selling price is $3.49 per unit. a. Determine the break-even point (
> Evaluate the performance of Johnson and Johnson in comparison to its industry.
> Compute the financial ratios for Global Manufacturing’s industry. Using Global’s ratios from problem 12, graph the firm’s and industry ratios as we’ve done in this chapter. Analyze Global’s performance in comparison to its industry. Data from problem 12
> Compare the reasons for the changes in return on equity for Global Manufacturing and its industry.
> Following are the consolidated financial statements for Global Manufacturing’s industry. Use Du Pont analysis on the industry financial statements to determine why industry return on equity changed from year to year.
> Below are financial statements for Global Manufacturing. After computing the ratios we discussed in this chapter, discuss strong and weak points of Global’s performance.
> Using the information in Tables 14.1 and 14.2, compute the financial ratios we discussed in this chapter for Walgreens using the 2010 and 2009 data.
> 1. How have the purchases of houses in the United States traditionally been financed? a. Fixed-rate mortgage b. Adjustable-rate mortgage c. Subprime mortgage d. Mortgage-backed security 2. A home loan to a borrower with a relatively high creditwort
> Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2017 level of $1,500,000. Refer to Genatron’s 2017 income statement, shown in Problem 6, where the income before interest and taxes is $2
> The Robinson Company has current assets and current liabilities for the two years listed in the text. a. Compare the current ratios between the two years. b. Compare the acid-test ratios between 2016 and 2017. Comment on your findings.
> Use a spreadsheet to construct a common-size balance sheet from the data in problem 2 and a common-size income statement from the data in problem 5. Data from problem 5: Use your knowledge of income statements to fill in the missing items. Data from p
> Use your knowledge of income statements and common-size statements to fill in the missing dollar amounts.
> Use the following information to construct an income statement. Cost of goods sold = $684,000; Gross profit = $546,000; General and administrative expense = $159,000; Selling and marketing expense = $134,000; Operating income = $228,000; Income before ta
> Use the following information to construct an income statement. Interest = $25,000; Sales = $950,000; Income tax rate = 25%; Selling and marketing expenses = $160,000; General and administrative expenses = $200,000; Gross profit = $550,000; Depreciation
> Use your knowledge of income statements to fill in the missing items.
> Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> 1. What are debt securities with maturities longer than one year and corporate stocks referred to as? a. Money market securities b. Mortgage market securities c. Capital market securities d. Derivative securities 2. What is the term for a loan back
> Using the financial statements in the text: a. Compute common-size financial statements. b. Compute year-to-year percentage changes in the various accounts. c. What insights about the firm can you obtain from this analysis?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to a supermarket? To a jeweler?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to an auto manufacturer? To a computer manufacturer?
> Using the financial statements below for the Global Manufacturing corporation, a. Compute common-size financial statements. b. Put together a statement of cash flows of the firm. Where did the firm invest funds during the year? How did it finance these
> Use the following income statement and balance sheet information to put together a statement of cash flows. 2017 Assets 2017 2016 Sales $1,230,000 Cash $25,000 $21,990 Cost of goods sold $684,000 Accounts receivable
> Use the “balance sheet equation” to determine owners’ equity if liabilities are $5 million and assets are $10 million.
