business finance questions, answers needed

Required: company's target cash balance i. The lower and upper limit Zip Ltd's decision rule b) Urithi Ltd sells merchandise on credit terms of net 50 while the industrial average credit terms are net 30. The company makes average sales of sh 3m per annum. The average numb of day sales for accounts receivable is 60 days. The company is considering changing its credit terms to net 30 on all sales. This change of credit terms is expected to result in the following: Sales would reduce to sh 2,600,000 per annum Accounts receivable would drop to 30 days ofsales Additional information: i. The variable cost ratio is 70% ii, Corporation tax rate is 30% ii. Interest on funds invested in accounts receivable is at a rate of 11% p annum Assume 360 day year. Required Assess whether the company should its credit term to net 30. an leveraged firm and it has constant expected operating earnings of sh 2m r year. The firm's tax rate is 30% and its market value is value of unlevered m Equity value sh 12m. The management is the use of some debt financ considering nce interest expense is tax deductible, the value of the firm would tend to increase as debt added to the capital structure, but there would be an offset in the form of a rising risk ef nancial distress costs is sh 10 million and the probability of distress would increase with verage according to the following schedule: Value of DEBT Prob of financial distress 2,500,000 5,000,000 what is the firm's cost of equity and WAcc atthis time? (Before debt financing is ii. According to MM with tax model, what is the eptimal level ef debt? iii. What is the optimal capital structure when financial distress costs are included (s QUESTION FOUR (7 Marks) a) Zip services Lud. a debt collection agency, has estimated that the standard deviation of its daily net cash flow is sh 22.750. The company pays sh 120 in transaction cost every time it transfers funds into and out of the money market. The rate of interest in the money market is 9465%. The company uses the Miller Orr Model to set its target cash balance. The minimum cash balance has been set at sh s7.s00