Question
1. A firm has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at
1. A firm has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the quarter amount to $35 and beginning accounts payable for the quarter is $25. Sales for the first and second quarters are expected to be $110 and $125, respectively, while purchases of inventories amount to 80% of the next quarter s forecasted sales. The accounts payable period is 90 days. All sales and purchases are made on credit. Also, assume that the sales and purchases are spread out evenly during the quarter. What are cash collections in the first quarter?
A 35
B. 55
C. 90
D. 100
2. A new, more efficient machine will last 4 years and allow inventory levels to decrease by $100,000 during its life. At a cost of capital of 13%, how does the net working capital change affect the project's NPV?
a. NPV will increase | ||
b. NPV will decrease | ||
c. NPV will not be affected | ||
d. NPV could either increase or decrease | ||
e. None of the above |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started