WK5 – Question and Problem Sets

Chapter 18

. Use the letter “I” to indicate an increase, the letter “D” for a decrease, and the letter “N” for no change:

operating cycle

15.
The company predicts that 4 percent of its

will never be collected, 36 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.

credit sales

12,560 12,560

0

for April, May and June.

Cash Budget

Mar April May June

cash disbursements:

credit purchases
wages, taxes, and expenses
interest
equipment purchases

If you just type in numbers as answers, you need to show how they were calculated.

If answers are determined using excel functions, that is sufficient to demonstrate how they were calculated.

No response to a question will receive zero credit. If you at least attemp a solution, you may receive partial credit.

Changes in the Cycles [LO1] Indicate the effect that the following will have on the cash cycle and the

operating cycle

Impact on

cash cycle

Ch18-1a

More finished goods are produced for inventory instead of for order.

Ch18-1b

A greater percentage of raw material purchases are paid for with credit.

Ch18-1c

Fewer raw materials than usual are purchased.

Ch18-1d

An increased number of customers begin to pay in cash instead of with credit.

Ch18-1e

Cash discounts offered by suppliers are decreased; so, payments are made earlier.

Ch18-1f

The terms of cash discounts offered to customers are made less favorable.

Here are some important figures from the budget of a retail company for the second quarter of 2

0

credit sales

Mar

April

May

June

285,000

325,900

355,300

380,500

credit purchases

175,500

235,600

215,000

225,600

cash disbursements:

wages, taxes, and expenses

62,150

72,400

76,590

interest

12,560

equipment purchases

88,750

140,000

Ch18-2

Complete the

Cash Budget

(gray areas do not need to be completed)

Beginning cash balance

185,000

cash receipts:

cash receipts for current month

cash collected for previous month sales

total cash available

total cash disbursements

ending cash balance

Chapter 20

If you just type in numbers as answers, you need to show how they were calculated.
If answers are determined using excel functions, that is sufficient to demonstrate how they were calculated.
No response to a question will receive zero credit. If you at least attemp a solution, you may receive partial credit.

Size of Accounts Receivable [LO1] A company sells on credit terms of net 30. Its accounts are, on average, five days past due. Annual credit sales are $9.5 million.
Ch20-1	What is the company’s balance sheet amount in accounts receivable?
Ch20-2	Credit Policy [LO2] A Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 325 bicycles. The average cost to the shop of a bicycle is $775. The owner knows that only 95 percent of the customers will be able to make their payments. To identify the remaining 5 percent, the company is considering subscribing to a credit agency. The initial charge for this service is $2,400, with an additional charge of $9.50 per individual report.
How much can company save by subscribing to credit agency?

Chapter 21

If you just type in numbers as answers, you need to show how they were calculated.
If answers are determined using excel functions, that is sufficient to demonstrate how they were calculated.
No response to a question will receive zero credit. If you at least attemp a solution, you may receive partial credit.

Cross-Rates and Arbitrage [LO1] Suppose the Japanese yen exchange rate is ¥110 = $1, and the British pound exchange rate is £1 = $1.75.
Ch21-1a	What is the cross-rate in terms of yen per pound?
Ch21-1b	Suppose the cross-rate is ¥190 = £1. Is there an arbitrage opportunity here?
Ch21-1c	If there is, explain how to take advantage of the mispricing and the potential arbitrage profit.
Ch21-1d	What is your arbitrage profit per dollar used?
Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $20 million to invest for three months. The interest rate in the United States is 0.28 percent per month. The interest rate in Great Britain is 0.33 percent per month. The spot exchange rate is £0.545, and the three-month forward rate is £0.547.
Ch21-2a	What will the treasurer’s balance be (in dollars) after three months if he invests in the US?
Ch21-2b	What will the treasurer’s balance be (in dollars) after three months if he invests in the UK?

Chapter 26

If you just type in numbers as answers, you need to show how they were calculated.
If answers are determined using excel functions, that is sufficient to demonstrate how they were calculated.
No response to a question will receive zero credit. If you at least attemp a solution, you may receive partial credit.

and

. Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $7.50 per share.

Firm X Firm Y

,000

$ 24

Calculating Synergy [LO3] Pearl, Inc., has offered $675 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $592 million as an independent operation.
Ch26-1	If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?
Balance Sheets for Mergers [LO2] Consider the following premerger information about	Firm X	Firm Y
Ch26-2	Assuming neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm XY assuming the use of purchase accounting.
Total Earnings	$ 87,000		$ 24
Shares outstanding	55,000	20,000
Per-share values:
Market	$ 72
Book	$ 10	$ 5