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fin601 midterm




Question;1.;Data on Liu Inc. for the;most recent year are shown below, along with the inventory conversion;period (ICP) of the firms against which it benchmarks. The firm's new;CFO believes that the company could reduce its inventory enough to reduce;its ICP to the benchmarks? average. If this were done, by how much;would inventories decline? Use a 365-day year.;Cost of goods sold;=;$85,000;Inventory;=;$20,000;Inventory conversion period;(ICP);=;85.88;Benchmark inventory conversion;period (ICP) = 38.00;(Points;10);$ 7,316;$ 8,129;$ 9,032;$10,036;$11,151;Question;2. 2.;Data on Mertz Co., for the most;recent year are shown below, along with the payables deferral period;(PDP) for the firms against which it benchmarks. The firm's new CFO;believes that the company could delay payments enough to increase its PDP;to the benchmarks? average. If this were done, by how much would;payables increase? Use a 365-day year.;Cost of goods sold;=;$75,000;Payables;=;$5,000;Payables deferral period (PDP);=;24.33;Benchmark payables deferral;period;=;30.00;(Points;10);$ 764;$ 849;$ 943;$1,048;$1,164;Question;3. 3.;Shulman Inc. has the;following data, in thousands. Assuming a 365-day year, what is the;firm's cash conversion cycle?;Annual sales;=;$45,000;Annual cost of goods sold;=;$30,000;Inventory;=;$4,500;Accounts receivable;=;$1,800;Accounts payable;=;$2,500;(Points;10);28 Days;32 Days;35 Days;39 Days;43 Days;Question;4. 4.;Howes Inc. purchases;$4,562,500 in goods per year from its sole supplier on terms of 2/15, net;50. If the firm chooses to pay on time but does not take the;discount, what is the effective annual percentage cost of its;non-free trade credit? (Assume a 365-day year.);(Points;10);20.11%;21.17%;22.28%;23.45%;24.63%;Question;5. 5.;Noddings Inc.'s business is;booming, and it needs to raise more capital. The company purchases;supplies on terms of 1/10 net 20, and it currently takes the;discount. One way of getting the needed funds would be to forgo the;discount, and the firm's owner believes she could delay payment to 40 days;without adverse effects. What would be the effective annual;percentage cost of funds raised by this action? (Assume a 365-day;year.);(Points;10);10.59%;11.15%;11.74%;12.36%;13.01%;Question;6. 6.;In 1985, a given Japanese;imported automobile sold for 1,476,000 yen, or $8,200. If the car;still sold for the same amount of yen today but the current exchange rate;is 144 yen per dollar, what would the car be selling for today in U.S.;dollars?;(Points;10);$5.964;$8,200;$10,250;$12,628;$13,525;Question;7. 7.;Suppose in the spot market 1;U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities;have an annualized return of 6% (and thus a 6-month periodic return of;3%). 6-month U.S. securities have an annualized return of 6.5% and a;periodic return of 3.25%. If interest rate parity holds, what is the;U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?;(Points;10);1 U.S. dollar = 0.6235 Canadian;dollars;1 U.S. dollar = 0.6265 Canadian;dollars;1 U.S. dollar = 1.0000 Canadian;dollars;1 U.S. dollar = 1.5961 Canadian;dollars;1 U.S. dollar = 1.6039 Canadian;dollars;Question;8. 8.Suppose;one year ago, Stackpool inc. had inventory in Britain valued at;240,000 pounds. The exchange rate for dollars to pounds was 1? = 2;U.S. dollars. This year the exchange rate is 1? = 1.82 U.S.;dollars. The inventory in Britain is still valued at 240,000;pounds. What is the gain or loss in inventory value in U.S. dollars;as a result of the change in exchange rates? (Points: 10);-$240,000;-$43,200;$0;$43,200;$47,473;Question;9. 9.;In its negotiations;with its investment bankers, Patton Electronics has reached an agreement;whereby the investment bankers receive a smaller fee now (6% of gross;proceeds versus their normal 10%) but also receive a 1-year option to;purchase an additional 200,000 shares at $5.00 per share. Patton will go;public by selling $5,000,000 of new common stock. The investment bankers;expect to exercise the option and purchase the 200,000 shares in exactly;one year, when the stock price is forecasted to be $6.50 per share.;However, there is a chance that the stock price will actually be $12.00 per;share one year from now. If the $12 price occurs, what would the present;value of the entire underwriting compensation be? Assume that the investment;banker's required return on such arrangements is 15%, and ignore taxes.;(Points;10);$1,235,925;$1,300,973;$1,369,446;$1,441,522;$1,517,391;Question;10. 10.;The company you just;started has been offered credit terms of 4/30, net 90 days. What will be;the nominal annual percentage cost of its non-free trade credit if;it pays 120 days after the purchase? (Assume a 365-day year.);(Points;10);16.05%;16.90%;17.74%;18.63%;19.56%;11.Whitson Co. has annual sales of $36,500,000, or $100,000 a;day on a 365-day basis. The firm's cost of goods sold is 75% of;sales. On average, the company has $9,000,000 in inventory and $8,000,000;in accounts receivable. The firm is looking for ways to shorten its;cash conversion cycle. Its CFO has proposed new policies that would;result in a 20% reduction in both average inventories and accounts;receivable. She also anticipates that these policies would reduce sales;by 10%, while the payables deferral period would remain unchanged at 35;days. What effect would these policies have on the company's cash;conversion cycle? Round to the nearest whole day. (Points: 20);Question 12. 12.;Taylor Textbooks, Inc., buys;on terms of 2/15, net 50 days. It does not take discounts, and it;typically pays on time, 50 days after the invoice date. Net purchases;amount to $450,000 per year. On average, what is the dollar amount of costly;trade credit (total credit ? free credit) the firm receives during the;year? (Assume a 365-day year, and note that purchases are net of;discounts.);(Points: 20);Question 13. 13.;Stanley Corporation, which;has a zero tax rate due to tax loss carry-forwards, is considering a 5-year;$6,000,000 bank loan to finance service equipment. The loan has an;interest rate of 10% and would be amortized over 5 years, with 5 end-of-year;payments. Sutton can also lease the equipment for 5 end-of-year;payments of $1,790,000 each. How much larger or smaller is the bank;loan payment than the lease payment? Note: Subtract the loan payment;from the lease payment.;(Points: 20);Question 14. 14.;Waldrop Corporation is;considering a leasing arrangement to finance some manufacturing tools that it;needs for the next 3 years. The tools will be obsolete and worthless;after 3 years. The firm will depreciate the cost of the tools on a straight-line;basis over their 3-year life. It can borrow $4,800,000, the purchase;price, at 10% and buy the tools, or it can make 3 equal end-of-year lease;payments of $2,100,000 each and lease them. The loan obtained from the;bank is a 3-year simple interest loan, with interest paid at the end of the;year. The firm's tax rate is 40%. Annual maintenance costs;associated with ownership are estimated at $240,000, but this cost would be;borne by the lessor if it leases. What is the net advantage to leasing;(NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work;in thousands.);(Points: 20);Question 15. 15.;10 years;ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual;payment, tax-exempt muni bonds. The bonds had 10 years of call protection;but now the bonds can be called if the city chooses to do so. The call;premium would be 6% of the face amount. New 20-year, 6%, semiannual payment;bonds can be sold at par, but flotation costs on this issue would be 2% of the;amount of bonds sold. What is the net present value of the refunding? Note;that cities pay no income taxes, hence taxes are not relevant.;(Points: 20)


Paper#50466 | Written in 18-Jul-2015

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