set 5

Students should understand the operating and cash cycles of a company, the mechanics in preparing a cash budget, the use of exchange rates and interest rate parity in international finance and valuation of a company in a merger and acquisition.

Assignment Steps 

Resources:  Tutorial help on Excel® and Word® functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products. 

Complete the following Questions and Problems from each chapter as indicated. 

Show all work and analysis.

Prepare in Microsoft® Excel® or Word. 

• Ch. 18: Questions 3 & 11 (Questions and Problems section)
• Ch. 20: Questions 8 & 14 (Questions and Problems section)
• Ch. 21: Questions 4 & 7 (Questions and Problems section)
• Ch. 26: Questions 1 & 2 (Questions and Problems section): Microsoft® Excel® template provided for Problem 2

Format your assignment consistent with APA guidelines if submitting in Microsoft® Word.

Ch. 18: Questions 3 & 11

3.   Changes in the Operating Cycle [LO1] Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change:

a. Average receivables goes up.

b. Credit repayment times for customers are increased.

c. Inventory turnover goes from 3 times to 6 times.

d. Payables turnover goes from 6 times to 11 times.

e. Receivables turnover goes from 7 times to 9 times.

f. Payments to suppliers are accelerated.

11.   Calculating the Cash Budget [LO3] Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2015:

The company predicts that 5 percent of its credit sales will never be collected, 35 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.

In March 2015, credit sales were $235,000 and credit purchases were $161,300. Using this information, complete the following cash budget:

· Ch. 20: Questions 8 & 14 (Questions and Problems section)

8.   Size of Accounts Receivable [LO1] The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, four days past due. If annual credit sales are $9.75 million, what is the company’s balance sheet amount in accounts receivable?

14.   Credit Policy Evaluation [LO2] The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. Based on the following information, determine if the company should proceed or not. Therequired return is 2.5 percent per period.

· Ch. 21: Questions 4 & 7 (Questions and Problems section)

4.   Using Spot and Forward Exchange Rates [LO1] Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.11.

a.   Which is worth more, a U.S. dollar or a Canadian dollar?

b.   Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.50? Why might the beer actually sell at a different price in the United States?

c.   Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

d.   Which currency is expected to appreciate in value?

e.   Which country do you think has higher interest rates—the United States or Canada? Explain.

7.   Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in the United States is .31 percent per month. The interest rate in Great Britain is .34 percent per month. The spot exchange rate is £.573, and the three-month forward rate is £.575. Ignoring transaction costs, in which country would the treasurer want to invest the company’s funds? Why?

· Ch. 26: Questions 1 & 2 (Questions and Problems section): Microsoft® Excel® template provided for Problem 2

1.   Calculating Synergy [LO3] Pearl, Inc., has offered $357 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $319 million as an independent operation. If the merger makes economic

Sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?

2.   Balance Sheets for Mergers [LO2] Consider the following premerger information about Firm X and Firm Y:

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share. Assuming that neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm X assuming the use of purchase accounting.

Chapter 26

Chapter 26

in” be installed in Excel.

Problems 2, 4, 5, 10

Input boxes in tan

Output boxes in yellow

Given data in blue

Calculations in red

Answers in green

NOTE: Some functions used in these spreadsheets may require that

the “Analysis ToolPak” or “Solver Add

–

To install these, click on “Tools|Add-Ins” and select “Analysis ToolPak”

and “Solver Add-In.”

#2

Chapter 26

$ – 0

$ – 0

$ – 0

$ – 0

Question 2

Input Area:

Firm X

Firm Y

Total earnings

Shares outstanding

Per-share values

Market

Book

Merger premium

Output Area:

Asset from X (book value)

$ – 0

Asset from Y (market value)

Purchase price of Y

Goodwill

Total assets XY = Total equity XY

#4

Chapter 26

Input Area:

$ – 0 $ – 0

Current assets Current liabilities
Other assets Long-term debt
Net fixed assets Equity
Total $ – 0 $ – 0

Output Area:

Current assets $ – 0 Current liabilities $ – 0
Other assets – Long-term debt –
Net fixed assets – Equity –
Goodwill –

Total $ – 0 $ – 0

Question 4
Silver Enterprises
		Current assets			Current liabilities
		Other assets			Long-term debt
		Net fixed assets			Equity
		Total
All Gold Mining
Market value of fixed assets
New long-term debt
Silver Enterprises – Post Merger

#5

Chapter 26

Input Area:

Output Area:

$ – 0

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

ERROR:#DIV/0!

Question 5

After-tax annual cash flow

Teller market value

Penn market value

Discount rate

Stock offer

Cash offer

a.

V*k

ERROR:#DIV/0!

Cash cost

Equity cost

b.

NPV cash

NPV stock

c.

#10

Chapter 26

Input Area:

Total earnings
Shares outstanding

per share

Output Area:

$ – 0

ERROR:#DIV/0!

a.

ERROR:#DIV/0!

b.

ERROR:#DIV/0!

ERROR:#DIV/0!

c. P/E ERROR:#DIV/0!

Price ERROR:#DIV/0!

P/E ERROR:#DIV/0!
ERROR:#DIV/0!

Question 10
Firm A	Firm B
	Price
Acquisition price
Cost
Shares given up by A
EPS
Old		P/E
New price
d.
At the current acquisition price, this is a
acquisition.