FINANCE 534, CHAPTER 16 HW

FINANCE 534, CHAPTER 16 HW :

 

1. Which of the followingstatements is CORRECT?

 

a. A firm that makes 90% of itssales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm willbe able to keep its accounts receivable at the current level, since the 10%cash sales can be used to finance the 10% growth rate.

b. In managing a firm’saccounts receivable, it is possible to increase credit sales per day yet stillkeep accounts receivable fairly steady, provided the firm can shorten thelength of its collection period (its DSO) sufficiently.

 

c. Because of the costs of granting credit, it is not possible for credit sales to be more profitable thancash sales.

 

d. receivables and payables both result from sales transactions, a firm witha high receivables-to-sales ratio must also have a high payables-to-salesratio.

 

e. Other things held constant,if a firm can shorten its DSO, this will lead to a higher current ratio.

 

2. Halka Company is a no-growthfirm. Its sales fluctuate seasonally, causing total assets to vary from$320,000 to $410,000, but fixed assets remain constant at $260,000. If the firmfollows a maturity matching (or moderate) working capital financing policy,what is the most likely total of long-term debt plus equity capital?

 

a. $260,642

b. $274,360

c. $288,800

d.  $304,000

e.$320,000

 

3. Your consulting firm wasrecently hired to improve the performance of Shin-Soenen Inc, which is highlyprofitable but has been experiencing cash shortages due to its high growthrate. As one part of your analysis, you want to determine the firm’s cash conversioncycle. Using the following information and a 365-day year,what is the firm’s present cash conversion cycle?

 

Average inventory = $75,000 .

Annual sales = $600,000 .

Annual cost of goods sold = $360,000 .

Average accounts receivable =$160,000 .

Average accounts payable = $25,000 .

 

1. 120.6 .

2. 126.9 .

3. 133.6 .

4. 140.6 .

5. 148.0

 

4. AffleckInc.’s business is booming, and it needs to raise more capital. The companypurchases 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 thefirm’s owner believes she could delay payment to 40 days without adverseeffects. What would be the effective annual percentage cost of funds raised bythis action? (Assume a 365-day year.)

 

a.10.59

b.11.15

c.11.74

d.12.36

e.13.01