Homework Assignment #2

Chapter 4, Problem6, page 114.Sales projections (LO2)Cyber Security Systems had sales of 3,500 units at $75 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 40 percent price increase. Returned merchandise will represent 8 percent of total sales. What is your net dollar sales projection for this year?

Chapter 5, Problem2, page 145.Break-even analysis (LO2)The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez's autograph stamped on them. Each bat sells for $35 and has a variable cost of $22. There are $97,500 in fixed costs involved in the production process.

a.Compute the break-even point in units.

b.Find the sales (in units) needed to earn a profit of $262,500.

Chapter 6, Problem1, page 184.Expected value (LO6)Gary's Pipe and Steel Company expects sales next year to be $800,000 if the economy is strong, $500,000 if the economy is steady, and $350,000 if the economy is weak. Gary believes there is a 20 percent probability the economy will be strong, a 50 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for next year?

Chapter 6, Problem4, page 184.External financing (LO1)Antivirus Inc. expects its sales next year to be $2,500,000. Inventory and accounts receivable will increase $480,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

Chapter 7, Problem1, page 220.Cost-benefit analysis of cash management (LO2)City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers. The collection time has been reduced by two days and disbursement time increased by one day because ofthese policies. Excess funds are being invested in short-term instruments yielding 12percent per annum.

a.If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up?

b.How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?