This document contains solutions to 16 problems related to working capital and current asset management. The problems cover topics such as cash conversion cycle calculation and analysis, economic order quantity modeling, accounts receivable management, cash discounts, and float. For each problem, the relevant calculations and recommendations are shown. An ethics problem at the end questions the practice of banks locating controlled disbursement accounts in very distant locations from the client company.
working capital ch solution financial management ....mohsin mumtazmianmohsinmumtazshb
The document discusses solutions to problems related to working capital and current asset management. It addresses topics such as cash conversion cycle, economic order quantity, accounts receivable management, and cash management techniques. The problems calculate financial metrics and evaluate strategies for reducing costs and improving profitability within the constraints of various assumptions provided in the questions.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is used to evaluate mutually exclusive projects and determine the maximum cost of capital for project acceptability.
cost of capital .....ch ...of financial management ..solution by MIAN MOHSIN ...mianmohsinmumtazshb
The document provides solutions to problems from Chapter 11 on the cost of capital.
It calculates the cost of various sources of capital such as debt, preferred stock, and common equity. It also calculates the weighted average cost of capital (WACC) using different capital structure weights.
Key calculations include:
1) Calculating the cost of debt using the yield to maturity method and the approximation method.
2) Calculating the cost of preferred stock as the dividend yield.
3) Calculating the cost of common equity using the capital asset pricing model.
4) Calculating the WACC using both book value and market value weights for the capital structure.
5) Exploring how
This document contains 9 practice problems related to capital budgeting. Problem 9 provides details on a project being considered by Acme Mfg including the probability distribution of annual cash flows under different scenarios. Based on the coefficient of variation of NPV, the risk-adjusted discount rate for the project would be 12%. Using this rate, the expected NPV is negative $32.35 so the project should be rejected.
This document provides sample problems and solutions for calculating capital budgeting cash flows. It begins with an introduction stating the document will use 5-year projects and assets with lives equal to cash flow years. It then presents 18 sample problems covering topics like classification of expenditures, basic terminology, relevant cash flows, sunk costs, book value, taxes, depreciation, incremental cash flows, and expense reductions. The problems include calculations for initial investments, proceeds from asset sales, tax implications, and development of cash flow schedules to evaluate projects.
(1) This document contains solutions to problems related to time value of money concepts such as compounding, discounting, future value, present value, and annuities.
(2) Financial managers rely more on present value than future value because they typically make decisions at time zero, as does the present value calculation.
(3) As the discount rate increases or the time until receipt of a future payment increases, the present value of that payment decreases. Higher discount rates or longer times reflect higher opportunity costs.
This document contains solutions to problems from Chapter 7 on stock valuation. Problem P7-1 discusses authorized and available shares. Problem P7-2 covers preferred dividends for noncumulative and cumulative preferred stock. Problem P7-3 tests understanding of preferred dividends in arrears. Problem P7-4 involves valuation of convertible preferred stock.
This document contains solutions to problems related to leverage and capital structure.
1) It provides calculations of breakeven points, degrees of operating leverage, earnings per share, and degrees of financial leverage for various companies.
2) It demonstrates how changes in sales, costs, prices, and financial structure impact measures of leverage and risk.
3) Integrative problems bring together multiple leverage concepts to analyze overall business risk for different firms.
working capital ch solution financial management ....mohsin mumtazmianmohsinmumtazshb
The document discusses solutions to problems related to working capital and current asset management. It addresses topics such as cash conversion cycle, economic order quantity, accounts receivable management, and cash management techniques. The problems calculate financial metrics and evaluate strategies for reducing costs and improving profitability within the constraints of various assumptions provided in the questions.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is used to evaluate mutually exclusive projects and determine the maximum cost of capital for project acceptability.
cost of capital .....ch ...of financial management ..solution by MIAN MOHSIN ...mianmohsinmumtazshb
The document provides solutions to problems from Chapter 11 on the cost of capital.
It calculates the cost of various sources of capital such as debt, preferred stock, and common equity. It also calculates the weighted average cost of capital (WACC) using different capital structure weights.
Key calculations include:
1) Calculating the cost of debt using the yield to maturity method and the approximation method.
2) Calculating the cost of preferred stock as the dividend yield.
3) Calculating the cost of common equity using the capital asset pricing model.
4) Calculating the WACC using both book value and market value weights for the capital structure.
5) Exploring how
This document contains 9 practice problems related to capital budgeting. Problem 9 provides details on a project being considered by Acme Mfg including the probability distribution of annual cash flows under different scenarios. Based on the coefficient of variation of NPV, the risk-adjusted discount rate for the project would be 12%. Using this rate, the expected NPV is negative $32.35 so the project should be rejected.
This document provides sample problems and solutions for calculating capital budgeting cash flows. It begins with an introduction stating the document will use 5-year projects and assets with lives equal to cash flow years. It then presents 18 sample problems covering topics like classification of expenditures, basic terminology, relevant cash flows, sunk costs, book value, taxes, depreciation, incremental cash flows, and expense reductions. The problems include calculations for initial investments, proceeds from asset sales, tax implications, and development of cash flow schedules to evaluate projects.
(1) This document contains solutions to problems related to time value of money concepts such as compounding, discounting, future value, present value, and annuities.
(2) Financial managers rely more on present value than future value because they typically make decisions at time zero, as does the present value calculation.
(3) As the discount rate increases or the time until receipt of a future payment increases, the present value of that payment decreases. Higher discount rates or longer times reflect higher opportunity costs.
This document contains solutions to problems from Chapter 7 on stock valuation. Problem P7-1 discusses authorized and available shares. Problem P7-2 covers preferred dividends for noncumulative and cumulative preferred stock. Problem P7-3 tests understanding of preferred dividends in arrears. Problem P7-4 involves valuation of convertible preferred stock.
This document contains solutions to problems related to leverage and capital structure.
1) It provides calculations of breakeven points, degrees of operating leverage, earnings per share, and degrees of financial leverage for various companies.
2) It demonstrates how changes in sales, costs, prices, and financial structure impact measures of leverage and risk.
3) Integrative problems bring together multiple leverage concepts to analyze overall business risk for different firms.
This document discusses present worth analysis and cash flow calculations. It identifies the cash inflows and outflows of different projects, including savings from labor, salvage values, capital expenditures, and operating costs. It then calculates the present worth, payback period, discounted payback period, and net present worth of the various projects using interest rates ranging from 6% to 18% to determine which projects should be accepted.
This document discusses key concepts related to financial statements including:
- Calculating current assets, current liabilities, working capital, and shareholder's equity from a company's balance sheet
- Calculating earnings per share, par value, and market price from income statements
- Calculating changes in working capital requirements, taxable income, net income, and net cash flow from various financial activities
- Formulas and calculations for financial ratios like debt ratio, current ratio, quick ratio, inventory turnover, and more
- An example of calculating numbers of shares outstanding, book value per share, and debt ratio from given financial metrics
The document contains solutions to practice problems related to mergers and acquisitions. Problem 17-1 discusses the tax effects of an acquisition, finding that the tax savings are less than the cost of the merger. Problem 17-2 also examines tax effects, determining that a proposed merger is recommended based on positive net benefit. Problem 17-3 evaluates the present value of tax benefits for two potential acquisition targets.
- The document contains worked examples of profit and loss appropriation accounts and current accounts for partnerships with guaranteed partners.
- It allocates profits between partners based on their capital ratios and guarantees minimum profit shares for some partners.
- Any shortfall between the guaranteed amount and the partner's share based on capital ratio is made up from the other partners' shares.
The document contains multiple problems related to accounting for income taxes. It discusses concepts such as:
- Temporary and permanent differences between taxable income and accounting income
- Calculation of current tax payable and deferred tax assets/liabilities
- Tax loss carryforwards and their impact on deferred tax calculations
This document provides answers to end of chapter questions from chapters 1-3 of a personal finance textbook. The answers cover topics such as calculating rates of return and interest, determining financial ratios like debt ratios and current ratios, preparing personal budgets, and calculating taxable income and tax refund amounts. Formulas and tables from the textbook are referenced in some of the calculations.
This document explains concepts related to the time value of money including compounding, discounting, and real-life applications such as investing money and calculating future and present values. It provides formulas for calculating future value, present value, interest rates, and payments on lump sums and annuities. Examples are given to demonstrate how to use the formulas.
Debt or Equity Financing : Stephenson Real Estate Recapitalization Case StudyUun Ainurrofiq (Fiq)
Stephenson Real Estate is considering purchasing a tract of land for $60 million. It currently has no debt and is fully equity financed. The company's market value is $710 million with 20 million shares outstanding trading at $35.50 per share. Financing the purchase with debt would maximize the company's total market value compared to equity financing due to the tax shield benefits of interest payments.
The document discusses methods for calculating the weighted average cost of capital (WACC) for a firm. It explains how to calculate the cost of each source of capital, including debt, preferred stock, and common equity. For common equity, it outlines three approaches: the dividend growth model, capital asset pricing model (CAPM), and risk premium model. An example calculation is provided for each capital source. The weighted average cost of capital is the average of the costs of each source weighted by its proportion of the firm's total capital structure.
1) The document contains 14 multiple choice questions regarding the consolidation of financial statements and accounting for minority interests.
2) The questions cover topics such as calculating minority interest, unrealized gains and losses, and the equity method of accounting for investments in subsidiaries.
3) The correct answer is provided for each question, along with financial information used to arrive at the answer such as income statements, balance sheets, and calculations of adjustments.
Giovani Enterprises is a consulting firm that aims to eliminate client waste and costs through operational savings projects. It guarantees savings of at least 3 times the client's project investment. Giovani uses a methodology involving data analysis, process improvements, and performance management to achieve rapid savings. Example projects show potential savings ranging from 13-79% of clients' annual budgets. Giovani's approach helps reinforce competitive position by reducing unit costs while maintaining or increasing customer prices and unit profits.
This document discusses replacement decisions and economic analysis concepts. It provides examples of:
1) Calculating annual equivalent costs and present worth for replacement decisions involving multiple cash flows over time.
2) Comparing alternative replacement options based on their annual equivalent costs to determine the better option.
3) Determining the economic service life of equipment by identifying the number of years providing the maximum positive annual equivalent value.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is found by iteration or using a financial calculator.
This document discusses various capital budgeting techniques used to evaluate investment projects. It defines capital budgeting as the process of identifying, analyzing and selecting long-term investment projects. The key techniques covered are payback period, internal rate of return (IRR), net present value (NPV) and profitability index (PI). For an example project with $10,000-$15,000 cash flows over 5 years and $40,000 initial cost, the document calculates the metrics and determines that the project should be rejected based on IRR, NPV and PI, though accepted by payback period. It also discusses how the techniques can provide contradictory results for mutually exclusive projects.
This document contains solutions to practice problems about current liabilities management. It addresses topics like cash discounts, credit terms, accounts receivable financing, inventory financing, and the costs associated with different sources of short-term financing like bank loans, commercial paper, and factoring. The problems calculate effective interest rates and costs of various short-term financing options to determine the most cost effective alternative for different scenarios. Ethics considerations around accounts receivable financing are also discussed.
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
(1) This document provides solutions to problems related to time value of money concepts such as future value, present value, and compound interest calculations.
(2) It includes examples of using the future value formula to calculate future values over different time periods and interest rates. It also shows how to use future value tables to solve for unknown time periods.
(3) Several problems demonstrate using the present value formula to calculate present values of future lump sums, and how higher discount rates result in lower present values. Comparisons are made between investment alternatives based on their present values.
This document discusses accounting concepts related to depreciation of fixed assets. It defines depreciation as the loss of value over time for fixed assets like equipment and vehicles. It then explains different depreciation methods including declining balance, straight line, and units-of-production. The key points are that depreciation is considered a business expense that reduces taxable income, and allocating depreciation expenses over the useful life of an asset according to an established depreciation method matches the cost of the asset to the periods it provides benefits.
This document contains the answers to questions on a financial management exam. It includes calculations and explanations related to:
- Calculating the net present value of an investment project using discounted cash flows over 5 years. The project has a positive NPV so is financially acceptable.
- Calculating return on capital employed for the same project, which exceeds the target rate so is also financially acceptable.
- Discussing how an increase in interest rates would impact the costs and valuation of the project.
- Calculating the net costs and benefits of changing a company's trade receivables policy. The changes are not financially acceptable.
- Evaluating adopting a bulk purchase discount policy for inventory, which has a
The document discusses various capital budgeting techniques used to evaluate investment projects. It defines key terms like capital budgeting, net present value (NPV), internal rate of return (IRR), payback period, accounting rate of return, profitability index, and modified internal rate of return (MIRR). Examples are provided to demonstrate how to use these methods to calculate NPV, IRR, payback period, and profitability index for investment projects. The modified IRR is also introduced as an alternative to regular IRR in situations where IRR may not provide a unique solution.
This document contains questions and exercises related to capital investment decisions and project evaluation techniques. It discusses key concepts such as:
- Independent vs. mutually exclusive projects
- The importance of considering the timing and amount of cash flows when evaluating projects
- How ignoring the time value of money can lead to rejecting good projects or accepting bad ones
- Common project evaluation metrics like payback period, accounting rate of return, net present value, and internal rate of return
- The importance of using an appropriate discount rate that reflects a project's risk when calculating net present value or comparing internal rate of return
It then provides sample calculations and problems applying these concepts to evaluate hypothetical capital investment projects and determine which projects to accept or reject
This document discusses present worth analysis and cash flow calculations. It identifies the cash inflows and outflows of different projects, including savings from labor, salvage values, capital expenditures, and operating costs. It then calculates the present worth, payback period, discounted payback period, and net present worth of the various projects using interest rates ranging from 6% to 18% to determine which projects should be accepted.
This document discusses key concepts related to financial statements including:
- Calculating current assets, current liabilities, working capital, and shareholder's equity from a company's balance sheet
- Calculating earnings per share, par value, and market price from income statements
- Calculating changes in working capital requirements, taxable income, net income, and net cash flow from various financial activities
- Formulas and calculations for financial ratios like debt ratio, current ratio, quick ratio, inventory turnover, and more
- An example of calculating numbers of shares outstanding, book value per share, and debt ratio from given financial metrics
The document contains solutions to practice problems related to mergers and acquisitions. Problem 17-1 discusses the tax effects of an acquisition, finding that the tax savings are less than the cost of the merger. Problem 17-2 also examines tax effects, determining that a proposed merger is recommended based on positive net benefit. Problem 17-3 evaluates the present value of tax benefits for two potential acquisition targets.
- The document contains worked examples of profit and loss appropriation accounts and current accounts for partnerships with guaranteed partners.
- It allocates profits between partners based on their capital ratios and guarantees minimum profit shares for some partners.
- Any shortfall between the guaranteed amount and the partner's share based on capital ratio is made up from the other partners' shares.
The document contains multiple problems related to accounting for income taxes. It discusses concepts such as:
- Temporary and permanent differences between taxable income and accounting income
- Calculation of current tax payable and deferred tax assets/liabilities
- Tax loss carryforwards and their impact on deferred tax calculations
This document provides answers to end of chapter questions from chapters 1-3 of a personal finance textbook. The answers cover topics such as calculating rates of return and interest, determining financial ratios like debt ratios and current ratios, preparing personal budgets, and calculating taxable income and tax refund amounts. Formulas and tables from the textbook are referenced in some of the calculations.
This document explains concepts related to the time value of money including compounding, discounting, and real-life applications such as investing money and calculating future and present values. It provides formulas for calculating future value, present value, interest rates, and payments on lump sums and annuities. Examples are given to demonstrate how to use the formulas.
Debt or Equity Financing : Stephenson Real Estate Recapitalization Case StudyUun Ainurrofiq (Fiq)
Stephenson Real Estate is considering purchasing a tract of land for $60 million. It currently has no debt and is fully equity financed. The company's market value is $710 million with 20 million shares outstanding trading at $35.50 per share. Financing the purchase with debt would maximize the company's total market value compared to equity financing due to the tax shield benefits of interest payments.
The document discusses methods for calculating the weighted average cost of capital (WACC) for a firm. It explains how to calculate the cost of each source of capital, including debt, preferred stock, and common equity. For common equity, it outlines three approaches: the dividend growth model, capital asset pricing model (CAPM), and risk premium model. An example calculation is provided for each capital source. The weighted average cost of capital is the average of the costs of each source weighted by its proportion of the firm's total capital structure.
1) The document contains 14 multiple choice questions regarding the consolidation of financial statements and accounting for minority interests.
2) The questions cover topics such as calculating minority interest, unrealized gains and losses, and the equity method of accounting for investments in subsidiaries.
3) The correct answer is provided for each question, along with financial information used to arrive at the answer such as income statements, balance sheets, and calculations of adjustments.
Giovani Enterprises is a consulting firm that aims to eliminate client waste and costs through operational savings projects. It guarantees savings of at least 3 times the client's project investment. Giovani uses a methodology involving data analysis, process improvements, and performance management to achieve rapid savings. Example projects show potential savings ranging from 13-79% of clients' annual budgets. Giovani's approach helps reinforce competitive position by reducing unit costs while maintaining or increasing customer prices and unit profits.
This document discusses replacement decisions and economic analysis concepts. It provides examples of:
1) Calculating annual equivalent costs and present worth for replacement decisions involving multiple cash flows over time.
2) Comparing alternative replacement options based on their annual equivalent costs to determine the better option.
3) Determining the economic service life of equipment by identifying the number of years providing the maximum positive annual equivalent value.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is found by iteration or using a financial calculator.
This document discusses various capital budgeting techniques used to evaluate investment projects. It defines capital budgeting as the process of identifying, analyzing and selecting long-term investment projects. The key techniques covered are payback period, internal rate of return (IRR), net present value (NPV) and profitability index (PI). For an example project with $10,000-$15,000 cash flows over 5 years and $40,000 initial cost, the document calculates the metrics and determines that the project should be rejected based on IRR, NPV and PI, though accepted by payback period. It also discusses how the techniques can provide contradictory results for mutually exclusive projects.
This document contains solutions to practice problems about current liabilities management. It addresses topics like cash discounts, credit terms, accounts receivable financing, inventory financing, and the costs associated with different sources of short-term financing like bank loans, commercial paper, and factoring. The problems calculate effective interest rates and costs of various short-term financing options to determine the most cost effective alternative for different scenarios. Ethics considerations around accounts receivable financing are also discussed.
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
(1) This document provides solutions to problems related to time value of money concepts such as future value, present value, and compound interest calculations.
(2) It includes examples of using the future value formula to calculate future values over different time periods and interest rates. It also shows how to use future value tables to solve for unknown time periods.
(3) Several problems demonstrate using the present value formula to calculate present values of future lump sums, and how higher discount rates result in lower present values. Comparisons are made between investment alternatives based on their present values.
This document discusses accounting concepts related to depreciation of fixed assets. It defines depreciation as the loss of value over time for fixed assets like equipment and vehicles. It then explains different depreciation methods including declining balance, straight line, and units-of-production. The key points are that depreciation is considered a business expense that reduces taxable income, and allocating depreciation expenses over the useful life of an asset according to an established depreciation method matches the cost of the asset to the periods it provides benefits.
This document contains the answers to questions on a financial management exam. It includes calculations and explanations related to:
- Calculating the net present value of an investment project using discounted cash flows over 5 years. The project has a positive NPV so is financially acceptable.
- Calculating return on capital employed for the same project, which exceeds the target rate so is also financially acceptable.
- Discussing how an increase in interest rates would impact the costs and valuation of the project.
- Calculating the net costs and benefits of changing a company's trade receivables policy. The changes are not financially acceptable.
- Evaluating adopting a bulk purchase discount policy for inventory, which has a
The document discusses various capital budgeting techniques used to evaluate investment projects. It defines key terms like capital budgeting, net present value (NPV), internal rate of return (IRR), payback period, accounting rate of return, profitability index, and modified internal rate of return (MIRR). Examples are provided to demonstrate how to use these methods to calculate NPV, IRR, payback period, and profitability index for investment projects. The modified IRR is also introduced as an alternative to regular IRR in situations where IRR may not provide a unique solution.
This document contains questions and exercises related to capital investment decisions and project evaluation techniques. It discusses key concepts such as:
- Independent vs. mutually exclusive projects
- The importance of considering the timing and amount of cash flows when evaluating projects
- How ignoring the time value of money can lead to rejecting good projects or accepting bad ones
- Common project evaluation metrics like payback period, accounting rate of return, net present value, and internal rate of return
- The importance of using an appropriate discount rate that reflects a project's risk when calculating net present value or comparing internal rate of return
It then provides sample calculations and problems applying these concepts to evaluate hypothetical capital investment projects and determine which projects to accept or reject
1. The document contains accounting journal entries for receivables and notes receivable. It addresses recognizing bad debt expense using percentage of receivables and gross sales methods, adjusting the allowance account, and discounting notes receivable.
2. Several journal entries are provided for World Wide Finance to record loan origination, interest revenue, and cash receipts.
3. Journal entries record various transactions for an account receivable from SilaHamza including sales, returns, discounting notes receivable, bad debt expense, and assigning receivables to a factor.
- The document discusses various methods for evaluating the profitability and desirability of potential investment ventures, including net present value (NPV), internal rate of return (IRR), payback period, and discounted cash flow rate of return (DCFROR).
- It provides examples of calculating these metrics for projects with cash flows over multiple time periods, including determining the IRR through trial-and-error calculations.
- Present value profiles, which plot NPV against discount rates, can help compare projects and identify the IRR at which a project's NPV equals zero.
The group is analyzing an investment in Lockheed's Tri Star aircraft. They are considering whether to invest in the L-1011 Tri Star or its competitors, the DC-10 trijet and Airbus A-300B. The group will use capital budgeting techniques like net present value (NPV) and internal rate of return (IRR) to evaluate the investments and make a recommendation. Capital budgeting is the process used by businesses to determine whether projects such as new equipment or facilities provide sufficient returns to justify the capital expenditures required.
Project X has an NPV of $2,681 and an ANPV of $920.04. Project Y has an NPV of $1,778 and an ANPV of $1,079.54. Project Z has the highest NPV of $3,585 and ranks first when the ANPV approach is used to account for the unequal project lives. The ANPV approach results in Project Z being ranked first instead of Project X.
There are two main approaches to calculating NPV:
1. Money terms approach: Discount nominal (money) cash flows using the nominal cost of
capital. This approach incorporates expected inflation.
2. Real terms approach: Adjust nominal cash flows for inflation to calculate real cash flows,
and discount the real cash flows using the real cost of capital (which excludes expected inflation).
Whichever approach is used, the NPV should be the same as both incorporate the effects of
inflation in different ways. The money terms approach builds inflation into both the nominal cash
flows and nominal discount rate, whereas the real terms approach removes inflation from the cash
flows and discount rate.
(c)
The document discusses various capital budgeting methods including average return on investment, payback period, net present value, internal rate of return, modified internal rate of return, and profitability index. It provides examples of how to calculate each method and compares the advantages and disadvantages. It also discusses how to estimate cash flows, evaluate capital projects, and conduct sensitivity analysis.
The document outlines capital budgeting decision criteria such as net present value, internal rate of return, payback period, and profitability index. It provides examples of how to calculate and apply these criteria, including setting up cash flows, computing NPV and IRR, and using pro forma financial statements for project evaluation. The document also discusses key concepts in capital budgeting such as incremental cash flows, multiple rates of return, and mutually exclusive projects.
The document discusses methods for evaluating capital investment decisions in healthcare organizations. It introduces the payback period method, which calculates the number of years to recover an initial investment without considering the time value of money. The net present value (NPV) method is presented, which discounts future cash flows to account for the cost of capital and calculates the difference between the initial investment and discounted cash flows. The internal rate of return (IRR) method is also covered, which is the discount rate that makes the NPV equal to zero. Decision rules for accepting or rejecting projects using NPV and IRR are provided.
This document provides an overview of capital budgeting and cash flow analysis for investment projects. It defines key terms like capital expenditures, sunk costs, opportunity costs, and discusses how to estimate cash flows, including operating, terminal, and tax cash flows. It emphasizes the importance of using relevant cash flows to evaluate whether projects increase shareholder wealth.
A short presentation on managing working capital
Small businesses often focus on financing capex but overlook their working capital requirements, often with the attitude that it will work itself out. This is a risky strategy.
The document provides examples and solutions to international managerial finance problems. It discusses the impact of tax credits on the receipt of dividends by a multinational corporation from foreign subsidiaries. It also addresses the translation of financial statements between currencies and determining the most effective sources of investment and borrowing given exchange rate forecasts. Finally, it considers the ethics of a company prioritizing ethics over maximizing profits in business decisions.
This document contains solutions to problems from Chapter 16 on hybrid and derivative securities. The problems cover various topics such as lease cash flows, loan interest calculations, loan amortization schedules, comparing leases to purchases, determining values of convertible bonds and attached warrants, and calculating theoretical warrant values. The solutions provide numerical calculations and explanations for each problem.
This document contains solutions to problems related to chapter 13 on dividend policy. Problem P13-1 discusses procedures for declaring a cash dividend, including journal entries to record the declaration and payment. Problem P13-2 discusses ex-dividend dates and whether an investor would be better off buying stock before or after the ex-dividend date. Problem P13-3 discusses residual dividend policy, where a firm pays dividends from funds left over after meeting investment requirements.
This document contains solutions to problems related to leverage and capital structure.
Some key points summarized:
1) Breakeven analysis is performed for multiple companies using algebraic formulas to calculate the quantity needed to break even. Comparisons are made between companies' operating leverage.
2) Graphs are used to show the relationship between sales, costs, profits and losses at different production levels as well as to illustrate how degree of operating leverage decreases as production increases past the breakeven point.
3) Calculations are shown for earnings per share under different financing plans and levels of earnings before interest and taxes to demonstrate how degree of financial leverage is affected.
4) Integrated examples bring together concepts of operating
The document contains solutions to problems related to calculating the cost of capital, including the cost of debt using both the net present value and yield-to-maturity methods, the cost of preferred stock, the weighted average cost of capital using both book and market weights, and the effect of tax rates on the WACC. It also covers the capital asset pricing model for calculating the cost of common equity. The problems provide examples of calculating costs of different sources of capital and determining the WACC for companies based on their capital structure.
This document contains solutions to problems from Chapter 7 on stock valuation. Problem P7-1 discusses calculating the maximum shares available for sale and additional shares needed to raise funds. Problem P7-2 discusses calculating preferred dividends that are cumulative versus non-cumulative. The remaining problems calculate stock prices and values using various models including zero growth, constant growth, and variable growth models.
1) The document provides solutions to problems related to interest rates and bond valuation. It includes calculations of real rates of return, nominal interest rates, yield curves, and bond valuations.
2) Bond valuations are calculated using the present value of interest payments and maturity value. Changes in required returns impact bond values, with higher required returns lowering prices.
3) Yield curves from the past show how expectations of future interest rates have changed over time, from stable to downward sloping to upward sloping. Risk premiums incorporate default, interest rate, liquidity, and other risks.
This document contains solutions to problems related to risk and return from Chapter 5. Problem P5-1 calculates rates of return for two investments. Investment X has a higher rate of return of 12.5% compared to 12.36% for Investment Y. Problem P5-1 concludes that Investment X should be selected. Problem P5-9 assesses the return and risk of two projects, Project 257 and Project 432, by calculating their expected returns, standard deviations, ranges, and coefficients of variation to determine which project has lower risk.
বাংলাদেশের অর্থনৈতিক সমীক্ষা ২০২৪ [Bangladesh Economic Review 2024 Bangla.pdf] কম্পিউটার , ট্যাব ও স্মার্ট ফোন ভার্সন সহ সম্পূর্ণ বাংলা ই-বুক বা pdf বই " সুচিপত্র ...বুকমার্ক মেনু 🔖 ও হাইপার লিংক মেনু 📝👆 যুক্ত ..
আমাদের সবার জন্য খুব খুব গুরুত্বপূর্ণ একটি বই ..বিসিএস, ব্যাংক, ইউনিভার্সিটি ভর্তি ও যে কোন প্রতিযোগিতা মূলক পরীক্ষার জন্য এর খুব ইম্পরট্যান্ট একটি বিষয় ...তাছাড়া বাংলাদেশের সাম্প্রতিক যে কোন ডাটা বা তথ্য এই বইতে পাবেন ...
তাই একজন নাগরিক হিসাবে এই তথ্য গুলো আপনার জানা প্রয়োজন ...।
বিসিএস ও ব্যাংক এর লিখিত পরীক্ষা ...+এছাড়া মাধ্যমিক ও উচ্চমাধ্যমিকের স্টুডেন্টদের জন্য অনেক কাজে আসবে ...
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
How to Manage Your Lost Opportunities in Odoo 17 CRMCeline George
Odoo 17 CRM allows us to track why we lose sales opportunities with "Lost Reasons." This helps analyze our sales process and identify areas for improvement. Here's how to configure lost reasons in Odoo 17 CRM
This presentation was provided by Steph Pollock of The American Psychological Association’s Journals Program, and Damita Snow, of The American Society of Civil Engineers (ASCE), for the initial session of NISO's 2024 Training Series "DEIA in the Scholarly Landscape." Session One: 'Setting Expectations: a DEIA Primer,' was held June 6, 2024.
Main Java[All of the Base Concepts}.docxadhitya5119
This is part 1 of my Java Learning Journey. This Contains Custom methods, classes, constructors, packages, multithreading , try- catch block, finally block and more.
How to Add Chatter in the odoo 17 ERP ModuleCeline George
In Odoo, the chatter is like a chat tool that helps you work together on records. You can leave notes and track things, making it easier to talk with your team and partners. Inside chatter, all communication history, activity, and changes will be displayed.
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
-------------------------------------------------------------------------------
Find out more about ISO training and certification services
Training: ISO/IEC 27001 Information Security Management System - EN | PECB
ISO/IEC 42001 Artificial Intelligence Management System - EN | PECB
General Data Protection Regulation (GDPR) - Training Courses - EN | PECB
Webinars: https://pecb.com/webinars
Article: https://pecb.com/article
-------------------------------------------------------------------------------
For more information about PECB:
Website: https://pecb.com/
LinkedIn: https://www.linkedin.com/company/pecb/
Facebook: https://www.facebook.com/PECBInternational/
Slideshare: http://www.slideshare.net/PECBCERTIFICATION
Assessment and Planning in Educational technology.pptxKavitha Krishnan
In an education system, it is understood that assessment is only for the students, but on the other hand, the Assessment of teachers is also an important aspect of the education system that ensures teachers are providing high-quality instruction to students. The assessment process can be used to provide feedback and support for professional development, to inform decisions about teacher retention or promotion, or to evaluate teacher effectiveness for accountability purposes.
Physiology and chemistry of skin and pigmentation, hairs, scalp, lips and nail, Cleansing cream, Lotions, Face powders, Face packs, Lipsticks, Bath products, soaps and baby product,
Preparation and standardization of the following : Tonic, Bleaches, Dentifrices and Mouth washes & Tooth Pastes, Cosmetics for Nails.
Liberal Approach to the Study of Indian Politics.pdf
Chapter 14
1. Chapter 14
Working Capital and Current Assets Management
Solutions to Problems
P14-1. LG 2: Cash Conversion Cycle
Basic
(a) Operating cycle (OC) = Average age of inventories
+ Average collection period
= 90 days + 60 days
= 150 days
(b) Cash Conversion Cycle (CCC) = Operating cycle − Average payment period
= 150 days − 30 days
= 120 days
(c) Resources needed = (total annual outlays ÷ 365 days) × CCC
= [$30,000,000 ÷ 365] × 120
= $9,863,013.70
(d) Shortening either the average age of inventory or the average collection period, lengthening
the average payment period, or a combination of these can reduce the cash conversion cycle.
P14-2. LG 2: Changing Cash Conversion Cycle
Intermediate
(a) AAI = 365 days ÷ 8 times inventory = 46 days
Operating Cycle = AAl + ACP
= 46 days + 60 days
= 106 days
Cash Conversion Cycle = OC − APP
= 106 days − 35 days = 71 days
(b) Daily Cash Operating Expenditure = Total outlays ÷ 365 days
= $3,500,000 ÷ 365
= $9,589
Resources needed = Daily Expenditure × CCC
= $9,589 × 71
= $680,819
2. 356 Part 5 Short-Term Financial Decisions
(c) Additional profit = (Daily expenditure × reduction in CC)
× financing rate
= ($9,589 × 20) × 0.14
= $26,849
P14-3. LG 2: Multiple Changes in Cash Conversion Cycle
Intermediate
(a) AAI = 365 ÷ 6 times inventory = 61 days
OC = AAI + ACP
= 61 days + 45 days
= 106 days
CCC = OC − APP
= 106 days − 30 days
= 76 days
Daily Financing = $3,000,000 ÷ 365
= $8,219
Resources needed = Daily financing × CCC
= $8,219 × 76
= $624,644
(b) OC = 55 days + 35 days
= 90 days
CCC = 90 days − 40 days
= 50 days
Resources needed = $8,219 × 50
= $410,950
(c) Additional profit = (Daily expenditure × reduction in CCC)
× financing rate
= ($8,219 × 25) × 0.13
= $26,712
(d) Reject the proposed techniques because costs ($35,000) exceed savings ($26,712).
P14-4. LG 2: Aggressive versus Conservative Seasonal Funding Strategy
Intermediate
(a)
Month
Total Funds
Requirements
Permanent
Requirements
Seasonal
Requirements
January $2,000,000 $2,000,000 $0
February 2,000,000 2,000,000 0
March 2,000,000 2,000,000 0
April 4,000,000 2,000,000 2,000,000
May 6,000,000 2,000,000 4,000,000
3. Chapter 14 Working Capital and Current Assets Management 357
June 9,000,000 2,000,000 7,000,000
July 12,000,000 2,000,000 10,000,000
August 14,000,000 2,000,000 12,000,000
September 9,000,000 2,000,000 7,000,000
October 5,000,000 2,000,000 3,000,000
November 4,000,000 2,000,000 2,000,000
December 3,000,000 2,000,000 1,000,000
Average permanent requirement = $2,000,000
Average seasonal requirement = $48,000,000 ÷ 12
= $4,000,000
(b) (1) Under an aggressive strategy, the firm would borrow from $1,000,000 to $12,000,000
according to the seasonal requirement schedule shown in (a) at the prevailing short-term
rate. The firm would borrow $2,000,000, or the permanent portion of its requirements, at
the prevailing long-term rate.
(2) Under a conservative strategy, the firm would borrow at the peak need level of
$14,000,000 at the prevailing long-term rate.
(c) Aggressive = ($2,000,000 × 0.17) + ($4,000,000 × 0.12)
= $340,000 + $480,000
= $820,000
Conservative = ($14,000,000 × 0.17)
= $2,380,000
(d) In this case, the large difference in financing costs makes the aggressive strategy more
attractive. Possibly the higher returns warrant higher risks. In general, since the conservative
strategy requires the firm to pay interest on unneeded funds, its cost is higher. Thus, the
aggressive strategy is more profitable but also more risky.
P14-5. LG 3: EOQ Analysis
Intermediate
(a) (1) EOQ =
(2 S O) (2 1,200,000 $25)
= = 10,541
C $0.54
× × × ×
(2) EOQ =
(2 1,200,000 0)
0
$0.54
× ×
=
(3) EOQ =
(2 1,200,000 $25)
$0.00
× ×
= ∞
EOQ approaches infinity. This suggests the firm should carry the large inventory to minimize
ordering costs.
(b) The EOQ model is most useful when both carrying costs and ordering costs are present. As
shown in part (a), when either of these costs are absent the solution to the model is not realistic.
With zero ordering costs the firm is shown to never place an order. When carrying costs are zero
the firm would order only when inventory is zero and order as much as possible (infinity).
4. 358 Part 5 Short-Term Financial Decisions
P14-6. LG 3: EOQ, Reorder Point, and Safety Stock
Intermediate
(a) EOQ =
(2 S O) (2 800 $50)
= = 200 units
C 2
× × × ×
(b) Average level of inventory =
200 units 800 units 10 days
2 365
×
+
= 121.92 units
(c) Reorder point =
(800 units 10 days) (800 units 5 days)
365 days 365 days
× ×
+
= 32.88 units
(d) Change Do Not Change
(2) carrying costs (1) ordering costs
(3) total inventory cost (5) economic order quantity
(4) reorder point
P14-7. LG 4: Accounts Receivable Changes without Bad Debts
Intermediate
(a) Current units = $360,000,000 ÷ $60 = 6,000,000 units
Increase = 6,000,000 × 20% = 1,200,000 new units
Additional profit contribution = ($60 − $55) × 1,200,000 units
= $6,000,000
(b) Average investment in accounts receivable =
total variable cost of annual sales
turnover of A/R
Turnover, present plan =
365
6.08
60
=
Turnover, proposed plan =
365 365
5.07
(60 1.2) 72
= =
×
Marginal Investment in A/R:
Average investment, proposed plan:
*
(7,200,000 units $55)
5.07
×
= $78,106,509
Average investment, present plan:
(6,000,000 units $55)
6.08
×
= 54,276,316
Marginal investment in A/R = $23,830,193
*
Total units, proposed plan = existing sales of 6,000,000 units + 1,200,000 additional units.
(c) Cost of marginal investment in accounts receivable:
Marginal investment in A/R $23,830,193
Required return × 0.14
Cost of marginal investment in A/R $3,336,227
5. Chapter 14 Working Capital and Current Assets Management 359
(d) The additional profitability of $6,000,000 exceeds the additional costs of $3,336,227.
However, one would need estimates of bad debt expenses, clerical costs, and some
information about the uncertainty of the sales forecast prior to adoption of the policy.
P14-8. LG 4: Accounts Receivable Changes and Bad Debts
Challenge
(a) Bad debts
Proposed plan (60,000 × $20 × 0.04) $48,000
Present plan (50,000 × $20 × 0.02) 20,000
(b) Cost of marginal bad debts $28,000
(c) No, since the cost of marginal bad debts exceeds the savings of $3,500.
(d) Additional profit contribution from sales:
10,000 additional units × ($20 − $15) $50,000
Cost of marginal bad debts (from part (b)) (28,000)
Savings 3,500
Net benefit from implementing proposed plan $25,500
This policy change is recommended because the increase in sales and the savings of $3,500
exceed the increased bad debt expense.
(e) When the additional sales are ignored, the proposed policy is rejected. However, when all the
benefits are included, the profitability from new sales and savings outweigh the increased
cost of bad debts. Therefore, the policy is recommended.
P14-9. LG 4: Relaxation of Credit Standards
Challenge
Additional profit contribution from sales = 1,000 additional units × ($40 − $31) $9,000
Cost of marginal investment in A/R:
Average investment, proposed plan =
11,000 units $31
365
60
×
$56,055
Average investment, present plan =
10,000 units $31
365
45
×
38,219
Marginal investment in A/R $17,836
Required return on investment × 0.25
Cost of marginal investment in A/R (4,459)
Cost of marginal bad debts:
Bad debts, proposed plan (0.03 × $40 × 11,000 units) $13,200
Bad debts, present plan (0.01 × $40 × 10,000 units) 4,000
Cost of marginal bad debts (9,200)
Net loss from implementing proposed plan ($4,659)
The credit standards should not be relaxed since the proposed plan results in a loss.
6. 360 Part 5 Short-Term Financial Decisions
P14-10.LG 5: Initiating a Cash Discount
Challenge
Additional profit contribution from sales = 2,000 additional units × ($45 − $36) $18,000
Cost of marginal investment in A/R:
Average investment, proposed plan =
42,000 units $36
365
30
×
$124,274
Average investment, present plan =
40,000 units $36
365
60
×
236,712
Reduced investment in A/R $112,438
Required return on investment × 0.25
Cost of marginal investment in A/R 28,110
Cost of cash discount = (0.02 × 0.70 × $45 × 42,000 units) (26,460)
Net profit from implementing proposed plan $19,650
Since the net effect would be a gain of $19,650, the project should be accepted.
P14-11.LG 5: Shortening the Credit Period
Challenge
Reduction in profit contribution from sales = 2,000 units × ($56 − $45) ($22,000)
Cost of marginal investment in A/R:
Average investment, proposed plan =
10,000 units $45
365
36
×
$44,384
Average investment, present plan =
12,000 units $45
365
45
×
66,575
Marginal investment in A/R $22,191
Required return on investment × 0.25
Benefit from reduced
Marginal investment in A/R 5,548
Cost of marginal bad debts:
Bad debts, proposed plan (0.01 × $56 × 10,000 units) $5,600
Bad debts, present plan (0.015 × $56 × 12,000 units) 10,080
Reduction in bad debts 4,480
Net loss from implementing proposed plan ($11,972)
This proposal is not recommended.
P14-12. LG 5: Lengthening the Credit Period
Challenge
Preliminary calculations:
Contribution margin =
($450,000 $345,000)
0.2333
$450,000
−
=
7. Chapter 14 Working Capital and Current Assets Management 361
Variable cost percentage = 1 − contribution margin
= 1− 0.233
= 0.767
(a) Additional profit contribution from sales:
($510,000 − $450,000) × 0.233 contribution margin $14,000
(b) Cost of marginal investment in A/R:
Average investment, proposed plan =
$510,000 0.767
365
60
×
$64,302
Average investment, present plan =
$450,000 0.767
365
30
×
28,368
Marginal investment in A/R ($35,934)
Required return on investment × 0.20
Cost of marginal investment in A/R ($7,187)
(c) Cost of marginal bad debts:
Bad debts, proposed plan (0.015 × $510,000) $7,650
Bad debts, present plan (0.01 × $450,000) 4,500
Cost of marginal bad debts (3,150)
(d) Net benefit from implementing proposed plan ($3,663)
The net benefit of lengthening the credit period is minus $3,663; therefore the proposal is not
recommended.
P14-13.LG 6: Float
Basic
(a) Collection float = 2.5 + 1.5 + 3.0 = 7 days
(b) Opportunity cost = $65,000 × 3.0 × 0.11 = $21,450
The firm should accept the proposal because the savings ($21,450) exceed
the costs ($16,500).
P14-14.LG 6: Lockbox System
Basic
(a) Cash made available = $3,240,000 ÷ 365
= ($8,877/day) × 3 days = $26,631
(b) Net benefit = $26,631 × 0.15 = $3,995
The $9,000 cost exceeds $3,995 benefit; therefore, the firm should not accept the lockbox
system.
P14-15.LG 6: Zero-Balance Account
Basic
Current average balance in disbursement account $420,000
Opportunity cost (12%) × 0.12
Current opportunity cost $50,400
8. 362 Part 5 Short-Term Financial Decisions
Zero-Balance Account
Compensating balance $300,000
Opportunity cost (12%) × 0.12
Opportunity cost $36,000
+ Monthly fee ($1,000 × 12) 12,000
Total cost $48,000
The opportunity cost of the zero-balance account proposal ($48,000) is less than the current
account opportunity cost ($50,000). Therefore, accept the zero-balance proposal.
P14-16.Ethics Problem
Intermediate
Controlled disbursement accounts located at banks very distant from the company’s payables
staff, headquarters, and other offices are suspect. This really puts it into the realm of “remote
disbursement,” especially when the account is located in an out-of-the-way locale such as Grand
Junction, CO (which is where one bank’s controlled disbursement accounts are located). It takes
the Fed longer to present checks to this remote location.