(21.7) Aging Schedule Answer:
\nb Diff: M
\n.doc#_edn1″ title=””>[i]. Short Construction offers
\nits customer\u00e2\u0080\u0099s credit terms of 2\/10, net 30 days, while Fryman Construction
\noffers its customer\u00e2\u0080\u0099s credit terms of 2\/10, net 45 days. The aging schedules for each of the two
\ncompanies\u00e2\u0080\u0099 accounts receivable are reported below:<\/p>\n
Short Construction Fryman Construction
\n Age of Value
\nof Percentage of Value of Percentage of
\nAccount
\n(Days)
\nAccount Total Value Account Total Value
\n 0-10 $58,800 60% $ 73,500 50%
\n 11-30
\n19,600 20 29,400 20
\n 31-45
\n14,700 15 29,400 20
\n 46-60
\n2,940 3 10,290 7
\n Over 60 1,960 2 4,410 3
\nTotal Receivables
\n$98,000 $147,000<\/p>\n
Which company has the greatest percentage of overdue
\naccounts and what is their percentage of overdue accounts?<\/p>\n
a. Fryman; 50% overdue.
\nb. Short; 20% overdue.
\nc. Fryman; 30% overdue.
\nd. Fryman; 3% overdue.
\ne. Short; 40% overdue.<\/p>\n
\u00a0.doc#_edn2″ title=”” style=”font-size: 11px;”>[ii]. Your
\nfirm buys on credit terms of 2\/10, net 45 days, and it always pays on Day
\n45. If you calculate that this policy
\neffectively costs your firm $159,621 each year, what is the firm\u00e2\u0080\u0099s average
\naccounts payable balance? (Hint: Use the nominal cost of trade credit and
\ncarry its cost out to 6 decimal places.)<\/p>\n
a. $1,234,000
\nb. $ 75,000
\nc. $ 157,500
\nd. $ 625,000
\ne. $ 750,000<\/p>\n
(21.8)
\nEAR cost of trade credit Answer:
\ne Diff: M
\n.doc#_edn3″ title=””>[iii]. Suppose
\nthe credit terms offered to your firm by your suppliers are 2\/10, net 30
\ndays. Out of convenience, your firm is
\nnot taking discounts, but is paying after 20 days, instead of waiting until Day
\n30. You point out that the nominal cost of not taking the discount and paying
\non Day 30 is approximately 37 percent.
\nBut since your firm is not taking discounts and is paying on Day 20,
\nwhat is the effective annual cost of your firm\u00e2\u0080\u0099s current
\npractice, using a 365-day year?<\/p>\n
a.
\n36.7%
\nb. 105.4%
\nc.
\n73.4%
\nd.
\n43.6%
\ne. 109.0%<\/p>\n
\u00a0.doc#_edn4″ title=”” style=”font-size: 11px;”>[iv]. Hayes
\nHypermarket purchases $4,562,500 in goods over a 1-year period from its sole
\nsupplier. The supplier offers trade
\ncredit under the following terms: 2\/15,
\nnet 50 days. If Hayes chooses to pay on
\ntime but not to take the discount, what is the average level of the company\u00e2\u0080\u0099s
\naccounts payable, and what is the effective
\nannual cost of its trade credit?
\n(Assume a 365-day year.)<\/p>\n
a. $208,333; 17.81%
\nb. $416,667; 17.54%
\nc. $416,667; 27.43%
\nd. $625,000; 17.54%
\ne. $625,000; 23.45%<\/p>\n
\u00a0.doc#_edn5″ title=”” style=”font-size: 11px;”>[v]. A
\nfirm is offered trade credit terms of 2\/8, net 45 days. The firm does not take the discount, and it
\npays after 58 days. What is the effective annual cost of not taking this discount? (Assume a 365-day year.)<\/p>\n
a. 21.63%
\nb. 13.35%
\nc. 14.90%
\nd. 15.89%
\ne. 18.70%<\/p>\n
\u00a0.doc#_edn6″ title=”” style=”font-size: 11px; font-weight: normal;”>[vi]. Phranklin
\nPharms Inc. purchases merchandise from a company that gives sales terms of
\n2\/15, net 40 days. Phranklin Pharms has
\ngross purchases of $819,388 per year.
\nWhat is the maximum amount of
\ncostly trade credit Phranklin could get, assuming it abides by the supplier\u00e2\u0080\u0099s
\ncredit terms? (Assume a 365-day year.)<\/p>\n
a. $88,000
\nb. $33,000
\nc. $55,000
\nd. $50,000
\ne. $44,000<\/p>\n
\u00a0.doc#_edn7″ title=”” style=”font-size: 11px;”>[vii]. C+
\nNotes\u00e2\u0080\u0099 business is booming, and it needs to raise more capital. The company purchases supplies from a single
\nsupplier on terms of 1\/10, net 20 days, and it currently takes the
\ndiscount. One way of getting the needed
\nfunds would be to forgo the discount, and C+\u00e2\u0080\u0099s owner believes she could delay
\npayment to 40 days without adverse effects.
\nWhat is the effective annual rate
\nof stretching the accounts payable?<\/p>\n
a. 10.00%
\nb. 11.11%
\nc. 11.75%
\nd. 12.29%
\ne. 13.01%<\/p>\n
\u00a0.doc#_edn8″ title=”” style=”font-size: 11px; font-weight: normal;”>[viii]. Allen Brothers is interested
\nin increasing its free cash flow (which it hopes will result in a higher EVA
\nand stock price). The company\u00e2\u0080\u0099s goal is
\nto generate $180 million of free cash flow over the upcoming year. Allen\u00e2\u0080\u0099s CFO
\nhas made the following project ( help with nursing paper writing from experts with MSN & DNP degrees)ions for the upcoming year:<\/p>\n
\u00c2\u00b7
\nEBIT
\nis project ( help with nursing paper writing from experts with MSN & DNP degrees)ed to be $850 million.
\n\u00c2\u00b7
\nGross
\ncapital expenditures are expected to total $360 million, and its depreciation
\nexpense is expected to be $120 million.
\nThus, its net capital expenditures are expected to total $240 million.
\n\u00c2\u00b7
\nThe
\nfirm\u00e2\u0080\u0099s tax rate is 40 percent.<\/p>\n
The company forecasts that there will be no change in
\nits cash and marketable securities, nor will there be any changes in notes
\npayable or accruals. Which of the
\nfollowing will enable the company to achieve its goal of generating $180
\nmillion in free cash flow?<\/p>\n
b. Accounts receivable increase $470 million,
\ninventory increases $230 million, and accounts payable increase $790 million.
\nc. Accounts receivable increase $470 million,
\ninventory increases $230 million, and accounts payable increase $610 million.
\nd. Accounts receivable decrease by $500
\nmillion, inventory increases by $480 million, and accounts payable decline by
\n$80 million.
\ne. Accounts receivable decrease by $400
\nmillion, inventory increases by $480 million, and accounts payable increase by
\n$80 million.
\nf. Accounts receivable increase by $500
\nmillion, inventory increases by $100 million, and accounts payable decline by
\n$480 million.<\/p>\n
Tough:<\/p>\n
\u00a0.doc#_edn9″ title=”” style=”font-size: 11px;”>[ix]. Jordan Air Inc. has average inventory of
\n$1,000,000. Its estimated annual sales
\nare $10 million and the firm estimates its receivables conversion period to be
\ntwice as long as its inventory conversion period. The firm pays its trade
\ncredit on time; its terms are net 30 days.
\nThe firm wants to decrease its cash conversion cycle by 10 days. It believes that it can reduce its average
\ninventory to $863,000. Assume a 365-day
\nyear and that sales will not change. By
\nhow much must the firm also reduce its accounts receivable to meet its goal of
\na 10-day reduction in its cash conversion cycle?<\/p>\n
a. $ 101,900
\nb. $1,000,000
\nc. $ 136,986
\nd. $ 333,520
\ne. $ 0<\/p>\n
\u00a0.doc#_edn10″ title=”” style=”font-size: 11px;”>[x]. Dalrymple Grocers buys on
\ncredit terms of 2\/10, net 30 days, and it always pays on the 30th day. Dalrymple calculates that its annual costly
\ntrade credit is $375,000. What is the
\nfirm\u00e2\u0080\u0099s average accounts payable balance?
\nAssume a 365-day year.<\/p>\n
a. $187,475
\nb. $374,951
\nc. $223,333
\nd. $562,426
\ne. $457,443<\/p>\n
(21.8) Financial statements and
\ntrade credit Answer: d Diff: T
\n.doc#_edn11″ title=””>[xi]. Quickbow Company currently uses maximum trade
\ncredit by not taking discounts on its purchases. Quickbow is considering borrowing from its
\nbank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of
\nthis policy change on its net income. The standard industry credit terms
\noffered by all its suppliers are 2\/10, net 30 days, and Quickbow pays in 30
\ndays. Its net purchases are $11,760 per
\nday, using a 365-day year. The interest
\nrate on the notes payable is 10 percent and the firm\u00e2\u0080\u0099s tax rate is 40
\npercent. If the firm implements the plan,
\nwhat is the expected change in Quickbow\u00e2\u0080\u0099s net income?<\/p>\n
a. -$23,520
\nb. -$31,440
\nc. +$23,520
\nd. +$38,448
\ne. +$69,888<\/p>\n
Multiple Part:<\/p>\n
(The
\nfollowing information applies to the next three problems.)<\/p>\n
Callison Airlines is deciding whether to pursue a restricted or relaxed
\nworking capital investment policy.
\nCallison\u00e2\u0080\u0099s annual sales are expected to total $3.6 million, its fixed
\nassets turnover ratio equals 4.0, and its debt and common equity are each 50
\npercent of total assets. EBIT is
\n$150,000, the interest rate on the firm\u00e2\u0080\u0099s debt is 10 percent, and the firm\u00e2\u0080\u0099s
\ntax rate is 40 percent. If the company
\nfollows a restricted policy, its total assets turnover will be 2.5.
\nUnder a relaxed policy, its total assets turnover will be 2.2.<\/p>\n
\u00a0.doc#_edn12″ title=”” style=”font-size: 11px;”>[xii]. If the firm adopts a
\nrestricted policy, how much will it save in interest expense (relative to what
\nit would be if Callison were to adopt a relaxed policy)?<\/p>\n
a. $
\n3,233
\nb. $
\n6,175
\nc. $
\n9,818
\nd. $
\n7,200
\ne. $10,136<\/p>\n
\u00a0.doc#_edn13″ title=”” style=”font-size: 11px;”>[xiii]. What is the difference in the
\nproject ( help with nursing paper writing from experts with MSN & DNP degrees)ed ROEs between the restricted and relaxed policies?<\/p>\n
a. 2.24%
\nb. 1.50%
\nc. 1.00%
\nd. 0.50%
\ne. 0.33%<\/p>\n
\u00a0.doc#_edn14″ title=”” style=”font-size: 11px;”>[xiv]. Assume now the company
\nexpects that if it adopts a restricted policy, its sales will fall by 15
\npercent, EBIT will fall by 10 percent, but its total assets turnover, debt
\nratio, interest rate, and tax rate will remain the same. In this situation, what is the difference in
\nthe project ( help with nursing paper writing from experts with MSN & DNP degrees)ed ROEs between the restricted and relaxed policies?<\/p>\n
a. 2.24%
\nb. 1.50%
\nc. 1.00%
\nd. 0.50%
\ne. 0.33%<\/p>\n
Financial Calculator Section<\/p>\n
Multiple
\nChoice: Problems<\/p>\n
Medium:<\/p>\n
\u00a0.doc#_edn15″ title=”” style=”font-size: 11px;”>[xv]. Wicker
\nCorporation is determining whether to support $100,000 of its permanent working
\ncapital with a bank note or a short-term bond.
\nThe firm\u00e2\u0080\u0099s bank offers a two-year note for which the firm will receive
\n$100,000 and repay $118,810 at the end of two years. The firm has the option to renew the loan at
\nmarket rates. Alternatively, Wicker can
\nsell 8.5 percent annual coupon bonds with a 2-year maturity and $1,000 par
\nvalue at a price of $973.97. How many
\npercentage points lower is the interest rate on the less expensive debt instrument?<\/p>\n
a. 0.0%
\nb. 1.2%
\nc. 1.0%
\nd. 1.8%
\ne. 0.6%<\/p>\n
Tough:<\/p>\n
\u00a0.doc#_edn16″ title=”” style=”font-size: 11px;”>[xvi]. Leiner
\nCorp. is a retailer that finances its purchases with trade credit under the
\nfollowing terms: 1\/10, net 30 days. The
\ncompany plans to take advantage of the free trade credit that is offered. After all the free trade credit is used, the
\ncompany can either finance the clothing purchases with a bank loan that has an
\neffective rate of 10.1349 percent (on a 365-day year), or the firm can continue
\nto use trade credit.<\/p>\n
The company has an understanding
\nwith its suppliers that within moderation, it is all right to \u00e2\u0080\u009cstretch out\u00e2\u0080\u009d its
\npayments beyond 30 days without facing any additional financing costs. Therefore, the longer it takes the company to
\npay its suppliers, the lower the cost of trade credit. How many days would the firm wait to pay its
\nsuppliers in order for the cost of the trade credit to equal the cost of the
\nbank loan?<\/p>\n
a. 30
\ndays
\nb. 36
\ndays
\nc. 40
\ndays
\nd. 46
\ndays
\ne. 48
\ndays<\/p>\n
.doc#_ednref1″ title=””>[<\/p>\n","protected":false},"excerpt":{"rendered":"
(21.7) Aging Schedule Answer: b Diff: M .doc#_edn1″ title=””>[i]. Short Construction offers its customer\u00e2\u0080\u0099s credit terms of 2\/10, net 30 days, while Fryman Construction offers\u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8827,10099,10540,10536,10892,10538,10539,10537,10891],"tags":[10549,10616,10615,7687,10627,8857,10552,10295,10548,10622,8907],"class_list":["post-130102","post","type-post","status-publish","format-standard","hentry","category-australia-essays","category-buy-essay","category-cheap-essay-writers","category-get-assignments-done","category-page-paper","category-phd-essay-writers","category-research-paper-writing-service-for-any-topic","category-study-bay-essay","category-write-my-assignment-ireland","tag-ai-plagiarism-free-essay-writing-tool","tag-australian-best-tutors","tag-best-trans-tutors","tag-buy-essay-uk","tag-cheap-dissertation-writer","tag-help-with-writing-an-essay","tag-help-write-my-paper-ai-free","tag-homework-for-you","tag-online-essay-writers","tag-phd-essays","tag-write-my-essay-for-me"],"_links":{"self":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/130102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/comments?post=130102"}],"version-history":[{"count":0,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/130102\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/media?parent=130102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/categories?post=130102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/tags?post=130102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}