Finance Management Question, Topics include: Nominal Annual Percentage, Cash Conversion Cycle, Cash Receipts, NPV Lease Analysis. The excel file has 5 tabs that need to be completed, please show all work in excel file.
MBA684.71 Module 8 Graded Assignment (Available points=80 pts) *You are not allowed to do this assignment with other people. *You are not allowed to discuss this assignment with other people. *Show all of your work for any possible partial credit. *All necessary calculations should be done on this excel file to show how to get your outputs. Then, I can figure out the whole process as to how your answers were obtained. Therefore, simply showing numbers as a result does not earn any point. * Be sure to answer exactly what is asked in the problems. Save your work file in the following format of the file name: M08_Assignment_Last Name_First Name.xls. Any submission through email won't be accepted. Note that including any special symbol in the file name may cause a trouble in uploading or downloading your file. So, don't use any special symbols, such as $, #, *, &, etc. Absolutely....\"One File Policy!!!\" You have to pack all your answers into this excel file. If you need a word document to write your answer down, please incorporate MS word document into this excel file. Follow these operations to import MS document into the excel file: Insert (from menu bar)>Object...>choose \"Word Document\" from the drop-down list. I 1 2 3 II Available Points 10 10 10 10 III IV V 1 2 3 Available Points 5 5 5 10 15 80 1.A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year? 2. Tori Company's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle? 3. Lakeview Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March? Data on Shin Inc. for 2008 are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average. If this were done, by how much would inventories decline? Use a 365-day year. Cost of goods sold = $85,000 Inventory = $20,000 Inventory conversion period (ICP) = 85.88 Benchmark inventory conversion period (ICP) = 38.00 Briefly answer the following questions: 1. What are the four elements of a firm's credit policy? To what extent can firms set their own credit policies as opposed to accepting policies that are dictated by its competitors? 2. From the standpoint of the borrower, is long-term or short-term credit riskier? Explain. 3.Distinguish between operating leases and financial (capital) leases. Would you be more likely to find an operating lease employed for a fleet of trucks or for a manufacturing plants? Whitmer Inc. sells to customers all over the U.S., and all receipts come in to its headquarters in New York City. The firm's average accounts receivable balance is $2.5 million, and they are financed by a bank loan at an 11% annual interest rate. The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%. If the annual cost of the system is $15,000, what pre-tax net annual savings would be realized? (Hint: Lockbox will reduce annual average balanc of account receivable which in turn save annual interest costs. Compare this savings with the annual lockbox cost) Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: The machinery falls into the MACRS 2-year class. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. The firm's tax rate is 40%. The loan would have an interest rate of 15%. The lease terms call for $400,000 payments at the end of each of the next 4 years. Assume that Big Sky Mining has no use for the machine beyond the expiation of the lease, the machine has an estimated residual value of $250,000 at the end of the 4th year. What is the NAL of the lease? Answer by competing the following worksheet template. (Please refer to the lecture notes). NPV LEASE ANALYSIS Year After-tax cash flows from leasing 0 (Leasing) 1 2 3 4 Lease payment Tax savings from lease Net cash flow PV cost of leasing at 9%
