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BUSI-320 Corporate Finance-2013 Fall-B Exam 2




Question;2.Problem 6-4 External financing [LO1];Antivirus, Inc., expects its sales;next year to be $4,400,000. Inventory and accounts receivable will increase;by $670,000 to accommodate this sales level. The company has a steady;profit margin of 20 percent with a 40 percent dividend payout.;How much external financing will;the firm have to seek? Assume there is no increase in liabilities other than;that which will occur with the external financing. (Omit the "$" sign in your response.);External funds needed;$;5.Problem 6-10 Optimal policy mix [LO5];Assume that Hogan Surgical Instruments;Co. has $3,000,000 in assets. If it goes with a low-liquidity plan for the;assets, it can earn a return of 18 percent, but with a high-liquidity plan;the return will be 14 percent. If the firm goes with a short-term financing;plan, the financing costs on the $3,000,000 will be 10 percent, and with a;long-term financing plan, the financing costs on the $3,000,000 will be 12;percent.;(a);Compute the anticipated return;after financing costs with the most aggressive asset-financing mix.(Omit the "$" sign in your response.);Anticipated return;(b);Compute the anticipated return;after financing costs with the most conservative asset-financing mix.(Omit the "$" sign in your response.);Anticipated return;(c);Compute the anticipated return;after financing costs with the two moderate approaches to the asset-financing;mix.(Omit the "$" sign in your;response.);Anticipated;return;Low liquidity;High liquidity;8.Problem 6-14 Conservative versus aggressive;financing [LO5];Collins Systems, Inc., is trying;to develop an asset-financing plan. The firm has $550,000 in temporary;current assets and $450,000 in permanent current assets. Collins also has;$650,000 in fixed assets.;(a);Construct two alternative;financing plans for the firm. One of the plans should be conservative, with;90 percent of assets financed by long-term sources and the rest financed by;short-term sources. The other plan should be aggressive, with only 10 percent;of assets financed by long-term sources and the remaining assets financed by;short-term sources. The current interest rate is 10 percent on long-term;funds and 5 percent on short-term financing. Compute the annual interest;payments under each plan.(Omit the "$;sign in your response.);Total;interest;Conservative;$;Aggressive;$;(b);Given that Collins?s earnings;before interest and taxes are $430,000, calculate earnings after taxes for;each of your alternatives. Assume a tax rate of 30 percent.(Omit the "$" sign in your response.);Earning;after taxes;Conservative;$;Aggressive;$;rev: 09_29_2011;10.Problem 6-16 Expectations hypothesis and;interest rates [LO4];Using the expectations hypothesis;theory for the term structure of interest rates, determine the expected;return for securities with maturities of two, three, and four years based on;the following data. (Round your answers to 2;decimal places. Omit the "%" sign in your response.);1-year T-bill at;beginning of year 1;1-year T-bill at beginning;of year 2;1-year T-bill at;beginning of year 3;1-year T-bill at;beginning of year 4;Expected;return;2 year security;3 year security;4 year security;11.Problem 6-18 Interest costs under alternative;plans [LO3];Carmen?s Beauty Salon has;estimated monthly financing requirements for the next six months as follows;January;$;8,400;April;$;8,400;February;2,400;May;9,400;March;3,400;June;4,400;Short-term financing will be;utilized for the next six months. Projected annual interest rates are;January;8.0;%;April;15.0;%;February;9.0;May;12.0;March;12.0;June;12.0;(a);Compute total dollar interest;payments for the six months.(Round;your intermediate and final answers to 2 decimal places. Omit the;$" sign in your response.);Total dollar interest;payments;$;(b-1);Compute the total dollar interest;payments if long-term financing at 12 percent had been utilized throughout;the six months?(Omit the "$" sign;in your response.);Total dollar interest;payments;$;(b-2);If long-term financing at 12;percent had been utilized throughout the six months, would the total dollar;interest payments be larger or smaller?;rev: 12_14_2012;14.Problem 6-13 Impact of term structure of;interest rates on financing plan [LO4];Winfrey Diet Food Corp. has;$5,050,000 in assets.;Temporary current;assets;$;2,100,000;Permanent current;assets;1,555,000;Fixed assets;1,395,000;Total;assets;$;5,050,000;Short-term rates are 14 percent.;Long-term rates are 12 percent. Earnings before interest and taxes are;$1,070,000. The tax rate is 30 percent.;What will earnings after taxes;be? (Omit the "$" sign in your;response.);Earnings after taxes;$;rev: 03-18-2011;04-18-2012, 06_23_2012;15.Problem 7-2 Cost-benefit analysis of cash;management [LO2];Neon Light Company of Kansas City;ships lamps and lighting appliances throughout the country. Ms. Neon has;determined that through the establishment of local collection centers around;the country, she can speed up the collection of payments by two days.;Furthermore, the cash management department of her bank has indicated to her;that she can defer her payments on her accounts by one-half day without;offending suppliers. The bank has a remote disbursement center in Florida.;(a);If Neon Light Company has $2.65;million per day in collections and $1.13 million per day in disbursements;how many dollars will the cash management system free up?(Enter your answer in dollars not in millions. Omit the;$" sign in your response.);Freed-up funds;$;(b);If Neon Light Company can earn 9;percent per annum on freed-up funds, how much will the income be?(Enter your answer in dollars not in millions. Omit the;$" sign in your response.);Interest on freed-up;cash;$;(c);If the total cost of the new;system is $440,000, should it be implemented?;17.Problem 7-10 Determination of credit sales;[LO4];Mervyn?s Fine Fashions has an;average collection period of 50 days. The accounts receivable balance is;$87,500. What is the value of its credit sales? (Use 360 days in a year. Omit the "$" sign in;your response);Credit sales;$


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