Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,100 per month, and the rent is $2,700 per month. In addition, she must make a tax payment of $14,000 in December. The current cash on hand (on December 1) is $450, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

   
   
2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

Company X wants to borrow $10,000,000 floating for 10 years & company Y wants to borrow $10,000,000 fixed for 10 years. The borrowing from the local bank for each firm are:

A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR-0.2%; In exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%.: Y will pay the swap bank annual payments on $10,000,000 at a fixed rate of 10.30%. and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR - 0.15%. Assume YTM is 4%, What is the swap bank NPV from this project?

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 10 percent. The company’s market capitalization is $260 million, and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding, and the tax rate for both companies is 35 percent.

a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $

After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 8.

b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $

a proposed new investment has projected sales of $825,000. Variable costs are 55 percent of sales and fixed costs are $237,150; depreciation $91,000 per year. Prepare a pro forma income statement assuming a tax rate of 25 percent. What is projected net income? If the project costs $2,000,000, lasts for 6 years and the cost of capital is 15%, compute the NPV and IRR for the project.

How does Amazon CEO Jeff Bezos Achieve Cultural Diversity and what are his best practices and initiatives for achieving cultural diversity in the organization?

For example, does his executive board contain any minorities?

Explain which leadership practices were successful in diversity efforts and which practices needed improvement.

ECO Vietnam is planning to improve the transportation to Gia Bic Village by providing more ecofriendly option. The current fuel powered bus has been used for the past 4 years and was originally planned to be used for 10 years. It costed $1,000,000 to acquire, and was being depreciated straightline over 8 year period. However, it was found that the fuel powered bus began to emit black CO2 gases, and would violate their mission and vision as an ecotourism provider. The company would therefore like to investigate two mutually exclusive projects in order to replace the fuel powered bus. One option is an electric bus and another option is a hybrid electric bus. Both should be able to fit around 40 ecotourists. They have already conducted and paid $20,000 for an assessment of the potential of using electric and hybrid electric buses in ecotourism operations. The board of directors usually would like to gain back the investment amount within 5 years. The current fuel powered bus can be sold to another tourism operator at a salvage value of $170,000 if a new bus is acquired. The current corporate tax rate is 20%.

A new electric bus for use in protect areas cost $6,500,000, while the charging station for the bus costs $5,000 including installation. The firm’s financing costs are $32,000 per year. Administrative and legal fees associated with the capital acquisition are expected to be $9,000 and $4,000, respectively. The economic life of the investment is 7 years and will depreciate straight-line to a zero value over 10 years. Management team expects the electric bus can be sold after 7 years at a price of $2,000,000. ECO Vietnam expects the electronic bus will reduce fuel expenses by $980,000 annually, with additional revenues of $75,000 per year. Hopefully, with the word-of-mouth, more ecotourist will be attracted to visit this village, and should bring in 11% growth in revenues per year. Electricity fees initially are $80,000 and are expected to grow at 3% each year. To support the use of environmentally friendly transportation, the government will subsidize $50,000 annually for the first 5 years to companies not using fuel-powered buses.

The other option, a second hand hybrid electric bus costs $2,800,000, including maintenance fees. Administrative and legal fees associated with this acquisition are expected to be $5,000 and $8,000, respectively. The economic life of the investment is 5 years and will depreciate on a five-year MACRS to a salvage value of $0. Management team expects the hybrid electric bus can be salvaged at the end of it’s economic life at price of $280,000. ECO Vietnam believes fuel expenses will be reduced by $670,000 annually, with a 3% decrease in savings per year as the battery becomes less efficient.

Additional revenues will be the same as the electric bus of $75,000 per year, with a 11% growth in revenues per year. Electricity fees start at $15,000 and are expected to grow at 3% each year. For this kind of hybrid bus, additional spare parts of $5,000 will need to be prepared immediately, and accounts payable will increase about $3,000 annually once the bus is in use.

Currently ECO Vietnam has 20,000 zero coupon bonds with 10 year maturity, selling for 40% of the par value, 1,500,000 share of common stock, selling for $18 per share, with a beta of 1.3. Market risk premium is 6.50%, and the risk-free rate is 1.25%. The bus project is a little bit less risky than the company’s usual projects, so ECO Vietnam determined to apply an adjusted factor of -3% to the cost of capital. Given the above information about the projects and the cost of capital for ECO Vietnam, do all the calculations that are necessary in order to make a value creating decision. The general format is up to you, as long as all the components for making such decision are present. You should focus on using the right methods, rather than on getting the right answer.

Explain your recommendation to the board of directors

List and explain three (3) ways/channels in which countries finance their development using international financial markets. Explain how the choice of these channels can affect the development prospects of a country.

30-year bond has a 7% (once a year) coupon and an 8% yield to maturity. A) What is the modified duration? B) Without using convexity, if the yield changes to 10%, how much will the price of the bond change (in %)?

The CEO of Kingdom Ltd. is considering whether or not to convert the firm’s current all-equity capital structure to one that has 50% debt (by retiring equity and leaving its total value unchanged). Currently, the firm has 1,000 shares outstanding and its share price is $40. The firm’s business is quite mature and it expects to generate stable annual earnings before interest and tax (EBIT) at $2,000 forever. As the firm has no further growth opportunities, it practices a 100% dividend payout policy. The market interest rate on borrowing is 8%. Brian Ng, a major shareholder of the firm, owns 20% of the total shares. Assume there is no tax and all other assumptions in the M&M model are met, and that the share price does not change during the capital structure conversion. a.Compute the annual payout to Brian under BOTH the all-equity and the levered capital structure. Assume that he will keep all his 200 shares under the levered capital structure. b.If the firm decides to change to the new capital structure, show how Brian can use homemade leverage to resemble his payoff under the all-equity capital structure. Explain and comment on the implication of this.

14) B Markets has sales of $848,600, net income of $94,000, dividends paid of $28,200, total assets of $913,600, and current liabilities of $78,900. Assume that all costs, assets, and current liabilities change spontaneously with sales. The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 15 percent for next year, what will be the amount of external financing needed to support this level of growth? Assume the firm is currently operating at full capacity.

A: $49,535

B: $68,211

C: −$10,406

D: $13,909

E; $32,408

ICU Window, INC.is trying to determine its cost of debt. The firm has a debt issue outstanding with 11 years to maturity that is quoted at 111 percent of face value. The issue makes semiannual payments and has an embedded cost of 8.2 percent annually.

a. What is the company's pretax cost of debt?

b. If the tax rate is 24 percent, what is the after tax cost of debt?

a. Pretax cost of debt
   b. After tax cost of debt

Provide actual examples for each factor:
- Interest rate differentials
- Inflation rate differentials
- Country’s incoming level differentials
- Change in government controls such as international barriers
- Change in expectations of future exchange rates

What are some considerations to keep in mind when determining strategies for structuring real estate deals?  

A small company heats its building and spends ​$8,400 per year on natural gas for this purpose. Cost increases of natural gas are expected to be 8​% per year starting one year from now​ (i.e., the first cash flow is ​$9,072 at EOY​ one). Their maintenance on the gas furnace is ​$345per​ year, and this expense is expected to increase by 12​% per year starting one year from now​ (i.e., the first cash flow for this expense is ​$386.4 at the EOY​ one). If the planning horizon is 14 ​years, what is the total annual equivalent expense for operating and maintaining the​ furnace? The interest rate is 15​% per year.

discrete compounding when iequals=8​% per year.

discrete compounding when iequals=12

discrete compounding when iequals=15​% per year.