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Network Solutions just introduced a new, fully automated manufacturing plant that produces 2,000 wireless routers per day with materials costs of $50 per router and no other costs. The average number
Carraway Seed Company Inc. has for many years cultivated and sold what are known as heritage plants and seeds. For example, the company has sought out older varieties of tomato plants that are no
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance
Calculate the annualized cost of the following trade credit terms, when payment is made on the net due date (assume a 360-day year).a. 2/10, net 30b. 3/15, net 30c. 3/15, net 45d. 2/15, net 60
The R. Morin Construction Company needs to borrow $100,000 to help finance the cost of a new $150,000 hydraulic crane used in the firm’s commercial construction business. The crane will pay for
On July 1, 2012, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan with
You plan to borrow $20,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 10 percent annual interest for the six months the funds
Jimmy Hale is the owner and operator of the grain elevator in Brownfield, Texas, where he has lived for most of his 62 years. The rains during the spring have been the best in a decade and Mr. Hale
If a firm buys on trade credit terms of 2/10, net 50 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assume a 360-day
Determine the annualized cost of forgoing the trade credit discount on the following terms (assume a 360-day year):a. 1/10, net 20b. 2/10, net 30c. 3/10, net 30d. 3/10, net 60e. 3/10, net 90f. 5/10,
An American business needs to pay(a) 10,000 Canadian dollars,(b) 2 million yen,(c) 50,000Swiss francs to businesses abroad. What are the dollar payments to the respective countries?Selling quotes for
An American business pays $10,000, $15,000, and $20,000 to suppliers in Japan, Switzerland, and Canada, respectively. How much, in local currencies, do the suppliers receive?Selling quotes for
Compute the indirect quote for the spot and forward Canadian dollar, yen, and Swiss franc contracts.Selling quotes for Foreign Currencies in newYork
The spreads on the contracts as a percent of the asked rates are 2 percent for yen, 3 percent for Canadian dollars, and 5 percent for Swiss francs. Show in a table similar to the preceding one, the
You own $10,000. The dollar rate in Tokyo is 216.6743Â£. The yen rate in New York is given in the previous table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What
Compute the Canadian dollar/yen and the yen/Swiss franc spot rate from the data in the preceding table.Selling quotes for Foreign Currencies in newYork
You are in need of Australian dollars in six months, but before entering a forward contract to buy them, you would like to know their premium or discount from the existing spot rate. Calculate the
An American business needs to pay(a) 15,000 Canadian dollars,(b) 1.5 million yen,(c) 55,000Swiss francs to businesses abroad. What are the dollar payments to the respective countries?Selling quotes
An American business pays $20,000, $5,000, and $15,000 to suppliers in Japan, Switzerland, and Canada, respectively. How much, in local currencies, do the suppliers receive?Selling quotes for Foreign
Compute the indirect quote for the spot and forward Canadian dollar, yen, and Swiss franc contracts using the data found above.Selling quotes for Foreign Currencies in newYork
The spreads on the contracts as a percent of the asked rates are 4 percent for yen, 3 percent for Canadian dollars, and 6 percent for Swiss francs. Show, in a table similar to the previous one, the
You own $10,000. The dollar rate in Tokyo is 216.6752Â£. The yen rate in New York is given in the previous table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What
Compute the Canadian dollar/yen and the yen/Swiss franc spot rate from the data in the preceding table.Selling quotes for Foreign Currencies in newYork
You are in need of Swiss (Switzerland) francs in six months, but before entering a forward contract to buy them, you would like to know their premium or discount if the spot rate is 0.9772 and the
On August 8th the six-month risk-free rate of interest in Switzerland was 4 percent. If the spot exchange rate for dollars for Swiss francs is 0.9252 and the six-month forward exchange rate is
On August 8th the three-month risk-free rate of interest in the United States was 3.75 percent and it was 3 percent in Japan. If the spot exchange rate were .009074, what would you expect the
If a new iMac costs $1,400 and the spot rate for euros is €.76/$, what is the price in euros for the iMac?
If a new Samsung Blu-Ray machine costs ¥4,000 in Japan and the current spot rate is ¥.104/$, how much should this machine cost in the United States?
Assume you are working for a firm based in the United States that is considering a new project in the country of Tambivia. This new project will produce the following cash flows measured in TABs (the
Assume you are working for a firm based in the United States that is considering a new project in the country of Tambivia. This new project will produce the following cash flows measured in TABs (the
Construct a delivery date profit or loss graph similar to Figure 20.2 for a long position in a forward contract with a delivery price of $65. Analyze the profit or loss for values of the underlying
Repeat Study Problem 20–1, but this time draw the profit or loss graph from the perspective of the individual who sold (is short) the forward contract.In Problem 20–1, construct a delivery date
The Specialty Chemical Company operates a crude oil refinery located in New Iberia, Louisiana. The company refines crude oil and sells the by-products to companies that make plastic bottles and jugs.
Discuss how the exchange requirements that mandate traders to put up collateral in the form of a margin requirement and to use this account to mark their profits or losses for the day serve to
Draw a profit or loss graph (similar to that in Figure) for a call contract with an exercise price of $50 for which a $5 premium is paid. You may assume that the option is being evaluated on its
Currently a call contract with an exercise price of $10 on a share of List Aerospace’s common stock is selling for (that is, its premium is) $2. What would the profit or loss graph (similar to that
Draw a profit or loss graph (similar to figure) for a put contract with an exercise price of $45 for which a $5 premium is paid. You may assume that the option is being evaluated on its expiration
Currently a put contract with an exercise price of $5 on a share of Mily be Aerospace’s common stock is selling for (that is, its premium is) $1. What would the profit or loss graph (similar to
Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has
Consider the following call option:• The current price of the stock on which the call option is written is $20.00;• The exercise or strike price of the call option is $18.00;• The maturity of
You’ve just been introduced to the Black-Scholes option pricing model and want to give it a try, and would like to use it to calculate the value of a call option on TriHawk stock. Currently,
Marx and Winter, Inc. operate a chain of retail clothing stores throughout the U.S. Midwest. The firm recently entered into a loan agreement for $20 million that carries a floating rate of interest
The Prince Racket Company manufactures a line of tennis and raquetball equipment. The firm recently entered into a loan agreement for $20 million that carries a floating rate of interest equal to
Prepare a balance sheet and income statement for the Warner Company from the following scrambled list of items:Depreciation expense...............$ 66,000Cash .................... 225,000Long-term
Explain the key difference between what financial management focused on in the past versus today.
What are the four financial objectives? What do they mean?
Comment on the importance of the “return on revenue” financial objective.
What are investing decisions and financing decisions?
What are working capital accounts?
What accounts in the statement of income and the statement of financial position are included in? (a) Investing decisions, (b) Financing decisions, (c) Operating decisions?
What is an operating decision? Give some examples.
Why is it important for operating managers to understand the fundamentals of financial management?
Differentiate between legislation and corporate governance.
Will the finance function be more important in the future than it was in the past? Discuss.
Why is it important for managers to ask questions such as “How are we doing?” and “How will our business be protected?”
Differentiate between the role of the treasurer and the role of the controller.
Why should operating managers be responsible for the finance function?
1. If managers want to earn a 12% ROA, how much profit must the company generate? 2. If managers want to earn a 15% ROA, how much profit must the company generate? Non-current assets ........... $
With the following data, prepare a statement of income and a statement of financial position. You will have fill in the missing financial statement accounts.Cost of sales ............$ 700,000Profit
Assume that a company earns $280,000 in profit for the year on $3 million in revenue. The board of directors decides to keep half to pay for dividends and to reinvest the rest in the company. Sixty
1. Calculate the company's after-tax cost of borrowing. It is 9.932%2. Calculate the company's weighted average cost of capital. It is 11.613%. Sources AmountsTrade and other payables
Owners of a business are contemplating investing $550,000 in non-current assets in early January 2014. They are exploring ways to finance it. In 2012, the company had $250,000 in trade receivables,
List the following accounts under their respective type of business decisions:Change in long-term borrowingsProfit for the yearAcquisition of a businessDepreciation/amortizationShare capital
1. Calculate the company’s return on total assets for 2012.2. How much cash will be provided by internal operations in 2013, in particular by the following?• Retained earnings• Inventories•
What activities are involved in bookkeeping?
Is there a difference between the book value of accounts shown on the statement of financial position and market value? Explain.
Why do you think auditors write the following statement in a company’s annual report? “These consolidated financial statements are the responsibility of the company’s management. Our
Differentiate between cash accounting and accrual accounting.
What is a not-for-profit organization?
What are financial statements and what do they include?
Explain the different sections of the statement of income.
What does the statement of changes in equity show?
What is the connection between the retained earnings amount shown in the statement of changes in equity and the statement of financial position?
What is the difference between depreciation and capital cost allowance?
What kind of decisions can be made when analyzing financial statements?
Anthony Leung opens a retail store called The Bead Shop. During the first month of operation, Anthony makes the following accounting transactions:1. Invests $100,000 in cash in the business2. Buys
At the end of December 31, 2012, Cougar Inc.’s accounts are as follows:Office salaries ............... $30,000Finance costs ..............3,000Depreciation (administration) ........2,000Cost of
On its statement of financial position, a company shows buildings purchased for $700,000, equipment purchased for $350,000, and machinery purchased for $170,000. The depreciation and capital cost
ABC Inc.’s revenue and costs for the current year were the following:Revenue ............ $500,000Cost of sales .......... 300,000Gross profit ...........200,000Operating expenses .......100,000The
At the end of December 31, 2012, Cougar Inc.’s accounts are as follows:Accumulated depreciation ............ $100,000Current income taxes payable .......... 5,000Long-term borrowings .............
An accountant employed by Zimmerman Electronics Inc. was reviewing the following balances shown in the company’s ledgers for 2012:Mortgage
Prepare the following four financial statements for Linden International Inc. for 2012:1. Statement of income2. Statement of comprehensive income3. Statement of changes in equity4. Statement of
Prepare the following two financial statements for Housing Association Inc. for 2012.1. Statement of operations2. Statement of financial positionDirect public support
What are internal sources of financing?
Identify some of the key cash inflows and cash outflows.
Why are working capital accounts part of the operating activities shown on the statement of cash flows?
Comment on the key guidelines that can be used to identify whether a change in the accounts shown on a statement of financial position between two consecutive accounting periods is a cash inflow or a
Give a few examples of accounts shown in the two main sections of the statement of cash flows for a not-for-profit organization.
What financial statements are used to prepare the statement of cash flows?
How does the statement of cash flows complement the statement of income and the statement of financial position?
How can managers use the statement of cash flows to make important business decisions?
How does the statement of cash flows prepared for not-for-profit organizations differ from that prepared for profit-motivated businesses?
Identify, under the appropriate heading, whether the following changes are an inflow of cash or an outflow of cash. What amounts and percentages were used by internal and external sources to finance
From Vicky Subbarao€™s statements of financial position shown below, identify whether each account is an outflow of cash or an inflow ofcash.
Indicate under which activity (operating, financing, investing) the following accounts belong in the statement of cash flows:
For the following accounts, identify the working capital accounts and prepare the adjustments in non-cash working capital accounts statement.
With the following financial statements, prepare the adjustments in non-cash working capital accounts statement, and the statement of cash flows.Statements of Financial PositionAs at December 31(in
Use the following accounts to prepare a statement of cash flows for a not-for-profit organization:Long-term borrowings ………………………………………………... $ 50,000Purchase
In 2013, the management committee of Austin Industries Inc. would like to invest $75,000 in property, plant, and equipment. The board of directors would like to approve the decision, but first they
The management committee of Grant Electronics Inc. was studying a report prepared by its economics department about the expansion of a plant to increase their production capacity. The CEO, Jim Smart,

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