ASSUMPTIONS		Balance Sheets
(current assets shaded)	2007	2008	2009	2010	2011
Cash & Equivalents	$75	$75	$90	$100	$100
Accounts Receivable	300	400	600	550	500
Inventory	150	250	350	250	250
Net Fixed Assets	525	575	610	540	465
Total Assets	$1,050	$1,300	$1,650	$1,440	$1,315
(current liabilities shaded)
Accounts Payable	$125	$175	$250	$225	$200
Notes Payable	165	162	178	136	99
Accrued Operating Exp.	60	161	165	89	76
Long-Term Debt	500	400	300	100	50
Shareholders Equity	200	402	757.2	890.2	890.2
Total Liabilities & NW	$1,050	$1,300	$1,650	$1,440	$1,315
		Income Statements
Revenues (Sales)	$1,500	$2,250	$3,000	$2,000	$1,500
Cost of Goods Sold	600	900	1200	800	600
Operating Expenses	600	797	895	750	725
Depreciation	35	50	65	70	75
Interest	30	33	28	25	10
Taxes	94	188	325	142	36
Net Profit	141	282	487.2	213	54
Dividends	40	80	132	80	54
2.) Suppose a firm pays a $50,000 trade credit obligation to a supplier in cash.
A. What impact does this transaction have on the firm's current ratio if the initial current ratio equaled 1?

B. What impact does this transaction have on the firms current ratio if the intial current ratio is 0.5?

C. What impact does this transaction have on the firms current ratio if the initial current ratio equaled 1.7?

4. Mississippi Delta, Inc. has been selling switching equipment to computer companies on net-30 terms, in which payment is expected by 30 days from the invoice date. Concerned about deteriorating collection patterns, the credit manager has divided customers into two groups for examination purposes:

Prompt payors and laggards. Prompt payors (80 percent of Mississippi Deltas customers) pay, on average, in 35 days, versus a 72-day average for the laggards. The manager wonders if the credit terms should be modified to include a 2 percent cash discount on invoices paid within 10 days. The average invoice is the same for both groups, roughly $4,000. The manager expects 50% of the prompt payors to pay in exactly 10 days and the average on the other half to slip to 40 days. He thinks that 20% of the laggards will pay in 10 days and the average on the others will slip to 80 days. Given these forecasts, he is not sure that the lost revenue from discount takes (who would then pay only 98% of the invoiced dollar amount) justifies the improved collection. The companys annual cost of capital is 11%.

A.) Using NPV calculations, show the PV of the present collection experience.

B.) Calculate the NPV of the proposed 2/10, net-30 terms.

C.) Based on your NPV analysis, should Mississipi Delta Inc. adopt the cash discount?

D.) What other factors should be taken into account before Mississippi Delta Inc. makes a switch, assuming such is justifiable on an NPV basis?

E.) Sensivity analysis involves varying the key assumptions, one at a time, and observing the effect on the key decision criterion-such as profits or NPV. In the NPV analysis above, how could could one carry out sensitivity analysis? (If you have a financial spreadsheet available, conduct a sensitivity analysis that varies the number of prompt payors who will pay in exactly 10 days and report your findings.)

*** Answer in an Excel document and give explanation as to how and why you got to your answer ***