What’s the present value
September 20, 2019
this assignment, you will compare and evaluate risk
September 20, 2019

transfer money into her account

Problems / Exercises:
1. Tim Edwards is attempting to categorize several items from his company’s financial statements so he can determine his working capital. Tim notices the following categories of accounts and amounts: cash, $7,500; accounts payable, $23,200; accounts receivable, $27,500; sales taxes due city of Phoenix, $1,250; sales taxes due the Arizona Department of Revenue, $7,600; inventory, $35,500; wages payable, $8,000; taxes payable (federal), $3,335; money market fund, $42,000; and computer, $1,250.

a. List accounts classified as current assets and as current liabilities.
b. Determine the amount of gross working capital.
c. Determine the amount of net working capital.
d. What is Tim’s current ratio?

2. If you have $70,000 in an interest-bearing savings account that pays 4 percent annual interest, how much interest will you earn during a 30 day month?

3. Susan Allen has a restaurant in which she accepts credit cards and checks. Several of the places that Sue shops now accept debit cards and do not accept checks. Sue’s banker explained that a debit card would immediately transfer money into her account, but it would cost $70 per month for the equipment and bank charges. Although she requires proper identification, Sue loses approximately $870 a year as a result of bad checks. She also determined that on average she loses 115 days of interest on all checks because the banks are closed on 11 holidays and weekends (52 weeks times 2 weekend days = 104 + 11 holidays). Sue currently earns 2 percent interest on her bank accounts and accepts an average of $5,000 a day in checks.
a. What is the total annual cost to Sue for the debit card service?
b. What is the benefit?
c. Should Sue implement the system?

4. Danny’s Company gives terms of 2/10, n/30. Danny has annual credit sales of $950,000 and average accounts receivable of $130,000.
a. What is Danny’s accounts receivable turnover?
b. What is Danny’s average daily collection?
c. What is the relationship between the terms that Danny is giving and his average daily collection?

5. If Danny in exercise 4 has accounts receivable of $75,000 rather than $130,000:
a. What is Danny’s accounts receivable turnover?
b. What is Danny’s average collection period?
c. What should Danny do, if anything?

6. What is the payback if investment cost is $85,000 and the after tax benefit is $3,000?

7. An interest payment of $1,250 in a 27 percent tax bracket would result in a tax savings of _____.

8. Henry Stevenson buys a piece of equipment for $600,000. He puts down $150,000 and finances $450,000. Henry’s opportunity cost is 3 percent and the lender’s interest rate is 7 percent. Find the weighted average cost of capital (WACC).

9. Lucinda Browning bought a $37,000 car with a $7,000 down payment. The balance is financed by a manufacturer’s sale offering 0-percent annual interest. If Lucinda’s opportunity cost is 3 percent, what is her WACC?

10. The Unlimited Supply Co. is currently considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of the new machine is $125,000. The annual cash flows have the following projections:
Year Amount
1 15,000
2 39,000
3 43,000
4 27,000
5 15,000

If the cost of capital is 12 percent find the following:
a. The PVB =
b. The NPV =
c. Payback =
d. PI =

 

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