Need help answering finance questionsHelp needed answering finance questions. Need to be able to complete in excel assisting with finance questions
1. Fireside Inc. has the following data. What is the firm’s cash conversion cycle?
Inventory conversion period
38 days
Average collection period
19 days
Payables deferral period
20 days
2. Data on Nathan Enterprises for the most recent year are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm’s new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks’ average. If this were done, by how much would receivables decline? Use a 365-day year.
Sales
$110,000
Accounts receivable
$16,000
Days sales outstanding (DSO)
53.09
Benchmark days sales outstanding (DSO)
20.00
3. Marshall Inc. recently hired your consulting firm to improve the company’s performance. It has been highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. 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
4. Frosty Corporation 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
$31,500
Inventory
$4,000
Accounts receivable
$2,000
Accounts payable
$2,400
5. What are the four primary elements in a firm’s credit policy?
6. Safety Window and Door Co. buys on terms of 2/15, net 60 days. It does not take discounts, and it typically pays on time, 60 days after the invoice date. Net purchases amount to $450,000 per year. On average, how much “free” trade credit does the firm receive during the year? (Assume a 365-day year, and note that purchases are net of discounts.)
7. Suppose your firm buys $1,000 worth of supplies on credit with terms 3/15 n60.
a. What does “3/15 n60” mean?
b. If you pay the bill on the 14th day after the purchase, what is the cost of the trade credit you have used for the 14-day period?
c. If you pay the bill on the 50th day after the purchase, what is the cost of the trade credit you have used for the 45-day period after the discount period ended?
8. If your firm buys $1,000 worth of supplies on credit with terms 3/15 n60 and pays the bill on the 60th day after the purchase:
a. What is the approximate, or “nominal,” cost of trade credit as an annual rate?
b. What is the exact cost of trade credit as an annual rate?
9. Avery Corporation’s target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from reinvested earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Avery’s WACC?
10. Clifford Company is choosing between two projects. The larger project has an initial cost of $100,000, annual cash flows of $30,000 for 5 years. The smaller project has an initial cost of $50,000, annual cash flows of $16,000 for 5 years. The projects are equally risky with a cost of capital of 10%. If the projects are independent, and you have been advised to prioritize the IRR method, which project or projects would you pick?
11. Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what’s the chosen NPV versus the maximum possible NPV? The required rate of return is 7.5%.
Year
0
1
2
3
4
CFS
−$1,100
$550
$600
$100
$100
CFL
−$2,700
$650
$725
$800
$1,400
12. Worthington Inc. is considering a project that has the following cash flow data. What is the project’s payback period?
Year
0
1
2
3
Cash flows
−$500
$150
$200
$300
13. Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt. HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms’ ROEs?
Applicable to Both Firms
Firm HD’s Data
Firm LD’s Data
Assets
$200
Debt ratio
50%
Debt ratio
30%
EBIT
$40
Interest rate
12%
Interest rate
10%
Tax rate
35%
14. In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm’s additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?
Last year’s sales = S0
$200,000
Last year’s accounts payable
$50,000
Sales growth rate = g
40%
Last year’s notes payable
$15,000
Last year’s total assets = A0*
$135,000
Last year’s accruals
$20,000
Last year’s profit margin = PM
20.0%
Target payout ratio
25.0%
15. Brothers Breads has the following data. What is the firm’s cash conversion cycle?
Inventory conversion period =
50 days
Average collection period =
17 days
Payables deferral period =
25 days
16. Thornton Universal Sales’ cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?
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