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##### FIN 540 week 8

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Question;FIN 540 ? Homework Chapter 28;? 2013 Strayer University. All Rights;Reserved. This document contains Strayer University Confidential and;Proprietary information;and may not be copied, further distributed;or otherwise disclosed in whole or in part, without the expressed written;permission of;Strayer University.;FIN 540 Homework Chapter 28! Page 1 of 2!;Directions: Answer the following five;questions on a separate document. Explain how you reached the;answer or show your work if a mathematical;calculation is needed, or both. Submit your assignment using;the assignment link in the course shell.;Each question is worth five points apiece for a total of 25 points;for this homework assignment.;1. Which of the following would cause;average inventory holdings to decrease, other things held;constant?;a. The purchase price of inventory items;decreases by 50 percent.;b. The carrying price of an item decreases;(as a percent of purchase price).;c. The sales forecast is revised downward;by 10 percent.;d. Interest rates fall.;e. Fixed order costs double.;2. During times of inflation, which of;these inventory accounting methods is best for cash flow?;a. LIFO, because the most expensive goods;are recorded as being sold first, resulting in a;higher cost of goods sold and a lower;reported net income.;b. Specific identification, because it;correctly identifies the actual item sold and so the actual;cost is recorded on the income statement.;c. Weighted average, because it smoothes;the reported cost of goods sold over time.;d. It doesn't matter which you use since;cash flow is unaffected by the choice of inventory;identification method.;e. FIFO, because the cheapest goods are;recorded as being sold first, resulting in lower;cost of goods sold and higher reported net;income.;3. Which of the following is true of the;Baumol model? Note that the optimal cash transfer amount is;C*.;a. If the total amount of cash needed;during the year increases by 20%, then C* will;increase by 20%.;b. If the average cash balance increases by;20%, then the total holding costs will increase;by 20%.;c. If the average cash balance increases by;20% the total transactions costs will increase;by 20%.;d. The optimal transfer amount is the same;for all companies.;e. If the fixed costs of selling securities;or obtaining a loan (cost per transaction) increase by;20%, then C* will increase by 20%.;4. Which of the following is true of the;EOQ model? Note that the optimal order quantity, Q, will be;called EOQ.;a. If the annual sales, in units, increases;by 20%, then EOQ will increase by 20%.;b. If the average inventory increases by;20%, then the total carrying costs will increase by;20%.;c. If the average inventory increases by 20%;the total order costs will increase by 20%.;d. The EOC is the same for all companies.;e. If the fixed per order cost increases by;20%, then EOQ will increase by 20%.;FIN;540 ? Homework Chapter 28;? 2013 Strayer University. All Rights;Reserved. This document contains Strayer University Confidential and;Proprietary information;and may not be copied, further distributed;or otherwise disclosed in whole or in part, without the expressed written;permission of;Strayer University.;FIN 540 Homework Chapter 28! Page 2 of 2!;5. Halliday Inc. receives a \$2 million;payment once a year. Of this amount, \$700,000 is needed for;cash payments made during the next year.;Each time Halliday deposits money in its account, a;charge of \$2.00 is assessed to cover;clerical costs. If Halliday can hold marketable securities that;yield 5 percent, and then convert these;securities to cash at a cost of only the \$2 deposit charge;what is the total cost for one year of;holding the minimum cost cash balance according to the;Baumol model?;a. \$7,483;b. \$187;c. \$3,741;d. \$374;e. \$748

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