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Question;[1]. Jarrett Enterprises is considering whether;to pursue a restricted or relaxed current asset investment policy. The firm?s;annual sales are $400,000, its fixed assets are $100,000, debt and equity are;each 50 percent of total assets. EBIT is $36,000, the interest rate on the;firm?s debt is 10 percent, and the firm?s tax rate is 40 percent. With a;restricted policy, current assets will be 15 percent of sales. Under a relaxed;policy, current assets will be 25 percent of sales. What is the difference in;the projected ROEs between the restricted and relaxed policies?;a. 0.0%;b. 6.2%;c. 5.4%;d. 1.6%;e. 3.8%;[2]. On average, a firm sells $2,000,000 in;merchandise a month. It keeps inventory;equal to one-half of its monthly sales on hand at all times. If the firm;analyzes its accounts using a 365-day year, what is the firm?s inventory;conversion period?;a. 365.0 days;b. 182.5 days;c. 30.3 days;d. 15.2 days;e. 10.5 days;[3]. Biondi Manufacturing Company (BMC) has an;average accounts receivable balance of $1,250,000, an average inventory balance;of $1,750,000, and an average accounts payable balance of $800,000. Its annual sales are $12,000,000 and its cost;of goods sold represents 80 percent of annual sales. Assume there are 365 days in a year. What is BMC?s cash conversion cycle?;a. 84.15 days;b. 53.23 days;c. 72.28 days;d. 100.55 days;e. 60.83 days;[4]. Porta Stadium Inc. has annual sales of;$80,000,000 and keeps average inventory of $20,000,000. On average, the firm has accounts receivable;of $16,000,000. The firm buys all raw;materials on credit, its trade credit terms are net 35 days, and it pays on;time. The firm?s managers are searching;for ways to shorten the cash conversion cycle. If sales can be maintained at existing levels;but inventory can be lowered by $4,000,000 and accounts receivable lowered by;$2,000,000, what will be the net change in the cash conversion cycle? Use a;365-day year. Round to the closest whole;day.;a. +105 days;b. -105 days;c. +27 days;d. -27 days;e. -3 days;[5]. You have recently been hired to improve;the performance of Multiplex Corporation, which has been experiencing a severe;cash shortage. As one part of your;analysis, you want to determine the firm?s cash conversion cycle. Using the following information and a 365-day;year, what is your estimate of the firm?s current cash conversion cycle?;?;Current inventory = $120,000.;?;Annual sales = $600,000.;?;Accounts receivable = $157,808.;?;Accounts payable = $25,000.;?;Total annual purchases = $365,000.;?;Purchases credit terms;net 30 days.;?;Receivables credit terms;net 50 days.;a. 49 days;b. 193 days;c. 100 days;d. 168 days;e. 144 days;[6]. Kolan Inc. has annual sales of $36,500,000;($100,000 a day on a 365-day basis). On average, the company has $12,000,000 in;inventory and $8,000,000 in accounts receivable. The company is looking for;ways to shorten its cash conversion cycle, which is calculated on a 365-day;basis. Its CFO has proposed new policies that would result in a 20 percent;reduction in both average inventories and accounts receivables. The company;anticipates that these policies will also reduce sales by 10 percent. Accounts;payable will remain unchanged. What effect would these policies have on the;company?s cash conversion cycle?;a. -40 days;b. -22 days;c. -13 days;d. +22 days;e. +40 days;Answer;e;[7]. Gaston Piston Corp. has annual sales of;$50,735,000 and maintains an average inventory level of $15,012,000. The average accounts receivable balance;outstanding is $10,008,000. The company;makes all purchases on credit and has always paid on the 30th day. The company is now going to take full;advantage of trade credit and pay its suppliers on the 40th day. If sales can be maintained at existing levels;but inventory can be lowered by $1,946,000 and accounts receivable lowered by;$1,946,000, what will be the net change in the cash conversion cycle? (Assume there are 365 days in the year.);a. -14.0 days;b. -18.8 days;c. -28.0 days;d. -25.6 days;e. -38.0 days;[8]. Cross Collectibles currently fills mail;orders from all over the U.S.;and receipts come in to headquarters in Little;Rock, Arkansas. The firm?s average accounts receivable (A/R);is $2.5 million and is financed by a bank loan with 11 percent annual interest.;Cross is considering a regional lockbox;system to speed up collections that it believes will reduce A/R by 20 percent. The annual cost of the system is $15,000. What is the estimated net annual savings to;the firm from implementing the lockbox system?;a. $500,000;b. $ 30,000;c. $ 60,000;d. $ 55,000;e. $ 40,000;[9]. Allen;Brothers is interested in increasing its free cash flow (which it hopes will;result in a higher EVA and stock price).;The company?s goal is to generate $180 million of free cash flow over;the upcoming year. Allen?s CFO has made the following projections for the;upcoming year;?;EBIT is projected to be $850 million.;?;Gross capital expenditures are expected to total $360;million, and its depreciation expense is expected to be $120 million. Thus, its net capital expenditures are;expected to total $240 million.;?;The firm?s tax rate is 40 percent.;The company forecasts;that there will be no change in its cash and marketable securities, nor will;there be any changes in notes payable or accrued liabilities. Which of the following will enable the;company to achieve its goal of generating $180 million in free cash flow?;a.;Accounts receivable increase $470 million, inventory;increases $230 million, and accounts payable increase $790 million.;b.;Accounts receivable increase $470 million, inventory;increases $230 million, and accounts payable increase $610 million.;c.;Accounts receivable decrease by $500 million, inventory;increases by $480 million, and accounts payable decline by $80 million.;d.;Accounts receivable decrease by $400 million, inventory;increases by $480 million, and accounts payable increase by $80 million.;e.;Accounts receivable increase by $500 million, inventory;increases by $100 million, and accounts payable decline by $480 million.;[10]. Short;Construction offers its customer?s credit terms of 2/10, net 30 days, while;Fryman Construction offers its customer?s credit terms of 2/10, net 45;days. The aging schedules for each of;the two companies? accounts receivable are reported below;Short Construction Fryman Construction;Age of Value of Percentage of Value of Percentage of;Account (Days);Account Total Value Account Total Value;0-10;$58,800 60% $;73,500 50%;11-30 19,600 20;29,400 20;31-45 14,700 15;29,400 20;46-60 2,940 3;10,290 7;Over 60;1,960 2 4,410 3;Total;Receivables $98,000 $147,000;Which company has the;greatest percentage of overdue accounts and what is their percentage of overdue;accounts?;a.;Fryman;50% overdue.;b.;Short;20% overdue.;c.;Fryman;30% overdue.;d.;Fryman;3% overdue.;e.;Short;40% overdue.;Tough;[11]. Jordan Air Inc. has average inventory of;$1,000,000. Its estimated annual sales;are $10 million and the firm estimates its receivables conversion period to be;twice as long as its inventory conversion period. The firm pays its trade;credit on time, its terms are net 30 days.;The firm wants to decrease its cash conversion cycle by 10 days. It believes that it can reduce its average;inventory to $863,000. Assume a 365-day;year and that sales will not change. By;how much must the firm also reduce its accounts receivable to meet its goal of;a 10-day reduction in its cash conversion cycle?;a. $;101,900;b. $1,000,000;c. $;136,986;d. $;333,520;e. $;0;Multiple Part;(The following information applies to the next three;problems.);Callison Airlines is deciding whether to pursue a;restricted or relaxed current asset investment policy. Callison?s annual sales are expected to total;$3.6 million, its fixed assets turnover ratio equals 4.0, and its debt and;common equity are each 50 percent of total assets. EBIT is $150,000, the interest rate on the;firm?s debt is 10 percent, and the firm?s tax rate is 40 percent. If the company follows a restricted policy;its total assets turnover will be 2.5.;Under a relaxed policy, its total assets turnover will be 2.2.;[12]. If;the firm adopts a restricted policy, how much will it save in interest expense;(relative to what it would be if Callison were to adopt a relaxed policy)?;a. $ 3,233;b. $ 6,175;c. $ 9,818;d. $ 7,200;e. $10,136;[13]. What;is the difference in the projected ROEs between the restricted and relaxed;policies?;a. 2.24%;b. 1.50%;c. 1.00%;d. 0.50%;e. 0.33%;[14]. Assume;now the company expects that if it adopts a restricted policy, its sales will;fall by 15 percent, EBIT will fall by 10 percent, but its total assets;turnover, debt ratio, interest rate, and tax rate will remain the same. In this situation, what is the difference in;the projected ROEs between the restricted and relaxed policies?;a. 2.24%;b. 1.50%;c. 1.00%;d. 0.50%;e. 0.33%.....;%.

 

Paper#44727 | Written in 18-Jul-2015

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