Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
Question 5 [45]
Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The
company sells the lamps both for cash and on credit. Company management is
contemplating relaxing its existing credit standards in order to boost sales and profits.
The company provided you with the following information relating to this lamp:
The current selling price is R150.00 per unit.
Total sales for 2018 were 80 000 units.
The variable cost per unit is R80.00.
The total fixed cost is R1 200 000.
Current credit terms are 30 days from date of purchase.
Current bad debts are 1% of sales.
Owing to tough business conditions the company is considering relaxing its current credit
standards and in doing so, anticipates the following to happen as a result:
o An expected increase of 8% in current total sales
o An increase in the average collection period to 40 days
o An expected increase of 2% in bad debts
The company’s opportunity cost of tying up funds in trade receivables is 15%.
A trading year consists of 365 days.
Required
Show all calculations rounded off to the closest rand or nearest whole number.
Use the information provided by Gentronics in order to determine the impact of the proposed
relaxation in credit standards on profits.
In: Finance
Advanced Time Value of Money Problems
Your child was just born and you are planning for his/her college education. Based on your wonderful experience in Financial Economics you decide to send your child to Hofstra University as well. You anticipate the annual tuition to be $60,000 per year for the four years of college. You plan on making equal deposits on your child’s birthday every year starting today, the day of your child’s birth. No deposits will be made after starting college. The first tuition payment is due in exactly 18 years from today (the day your child turns 18 – no deposit required, i.e. last deposit is on 17th birthday). Assume the annual expected return on your investments is 10% over this period.
(i) Calculate the annual deposit.
(ii) Calculate the amount needed if only equal annual deposits are made on birthday’s 5-10 inclusive.
(iii) Calculate the amount needed if two equal annual deposits are made on birthday’s 5 and 13.
(iv) Answer part (i), now assume tuition rises 10% per year.
(v) Answer part (i) assuming first deposit will be made on your child’s 1st birthday. All other information is the same. What is the annual tuition payment? How does it compare to part (i)? Is your answer surprising?
In: Finance
You have decided to place $920 in equal deposits every month at the beginning of the month into a savings account earning 3.21 percent per year, compounded monthly for the next 5 years. The first deposit is made today. How much money will be in the account at the end of that time period?
In: Finance
Henry and Jacob have been friends for many years and decide to go into business together. Henry is 25 years old and Jacob has just turned 17 years old two weeks ago. The have now saved up enough money to purchase a Macbook from Simon, their mutual friend, to start a graphic design business. Henry and Jacob approach you to advice on the following:
1.3 Assume the parties go to see Simon and agree that:
a) They will purchase the Macbook, 2017 specs, for R8000
b) They will take immediate delivery of the Macbook.
When Henry and Jacob get home, they find that the Macbook is in fact a 2011 model.
1.3.2 Advise the parties of the consequences of void and voidable contracts.
In: Finance
In: Finance
|
Why is it important to consider the consequences of taxes when financing a new project? Can you think of a situation in your own personal finances where taxes might influence whether you choose to make a purchase? |
In: Finance
Among the most important uses of managerial accounting data are establishing price for a particular product or service. This is how we earn revenue. In many situations, there are external factors that impact the price that is set. This in turns impacts the organization’s bottom line. It is important that a healthcare manager has a solid understanding of pricing strategies. Identify and discuss the pricing strategies available to a healthcare manager. Be sure to discuss what it is; how it is used; and the advantages/disadvantages of each one.
In: Finance
Suppose that A is an individual investor and OL represents other investors. All the investors who hold short positions are denoted by SH.
Currently, A holds 2,000 contracts long and OL holds 4,200 long contracts.
Starting with the current holdings, determine the holdings of A, OL, SH, as well as the volume and the Open Interest after each of the following transactions and the end result:
Day 0. Current holdings.
Day 1. A shorts 500 contracts and OL longs 500 contracts
Day 2. A longs 700 contracts and OL shorts 700 contracts
Day 3. A longs 200 contracts and SH shorts 200 contracts
Day 4. A shorts 800 contracts and SH longs 800 contracts
Suppose that A is an individual investor and OL represents other investors. All the investors who hold short positions are denoted by SH.
Currently, A holds 2,000 contracts long and OL holds 4,200 long contracts.
Starting with the current holdings, determine the holdings of A, OL, SH, as well as the volume and the Open Interest after each of the following transactions and the end result:
Day 0. Current holdings.
Day 1. A shorts 500 contracts and OL longs 500 contracts
Day 2. A longs 700 contracts and OL shorts 700 contracts
Day 3. A longs 200 contracts and SH shorts 200 contracts
Day 4. A shorts 800 contracts and SH longs 800 contracts
In: Finance
Suppose that A is an individual investor and OL represents other investors. All the investors who hold short positions are denoted by SH.
Currently, A holds 2,000 contracts long and OL holds 4,200 long contracts.
Starting with the current holdings, determine the holdings of A, OL, SH, as well as the volume and the Open Interest after each of the following transactions and the end result:
Day 0. Current holdings.
Day 1. A shorts 500 contracts and OL longs 500 contracts
Day 2. A longs 700 contracts and OL shorts 700 contracts
Day 3. A longs 200 contracts and SH shorts 200 contracts
Day 4. A shorts 800 contracts and SH longs 800 contracts
In: Finance
assume a bond has 5 years to maturity, a price of 1032, a coupon rate of 6%, a par value of 1000, and 1 coupon payment per year. find the bonds yield to maturity. If the number of coupon payments per year was 4 instead of 1, what would be the bonds new yield to maturity
In: Finance
You are the owner of a large data-services firm and are deciding on the purchase of a new hardware cooling system that you expect will yield $233,300 in cost-savings per year for the next 15 years. The installation of this cooling system will cost $3,000,000.
3. Suppose that you decide to finance the purchase of this system through a loan from the bank. The bank is willing to loan this money over an 8 year term at an interest rate of 4% per year.
a. Using a 70/30 debt-to-equity ratio, what is the NPV of this project?
i. (hint) calculate the yearly payment using excel function “PMT”
b. How does the NPV of this project change if a larger portion is financed through equity (e.g. debt-to-equity ratio of 60/40)? Why?
In: Finance
1.A data analytics company wants Short Stop to provide a new
client billing process which integrates their current customers
with new payment options as well as technical information. The
payment for Short Stop’s services would be structured with the
specific payments to be $400,000 immediately, a further $300,000 at
the end of the 2nd year, $500,000 at the end of the 4th year and
$1,000,000 on completion, at the end of the 7th year.
The paid monies can be invested at a nominal rate of 9% p.a.
compounded monthly.
To complete the desired work, Short Stop would have to purchase
additional computers and data sources immediately which are valued
at $1,500,000.
In determining if this project is a viable project for Short Stop,
your manager wants you to provide a detailed information on the
differences between the effective rate of return and a nominal
rate. In what circumstances can we use these to evaluate different
investment opportunities?
2. As information becomes increasingly available, additional
storage is needed for the handling of client’s insurance
capacities. Short Stop is looking to modernise the hardware in
which they store the data. Under the proposed idea, Short Stop
would purchase dedicated virtual servers and cloud storage which
costs $50,000 per year, indefinitely, from the end of year 2 onward
(as it takes a year to implement this change). If implemented, this
would result in an immediate cost saving of $500,000. Short Stop
has estimated that it could invest this money elsewhere, as an
alternative, at 8% p.a.
From a business perspective, describe the concept of time value of
money in such a way that your description sheds light on how
businesses come to financial investment decisions or how
investments today can be valued in the future. In the discussion,
your manager wants a clear description on the benefits of this
concept for the business (or any business).
3. The company has an opportunity to purchase a small company (Trek
Travel) which will augment the current operations of the company.
The cash flows from the company are variable as it is still a
growing company. The owners of the company have indicated that they
would be willing to sell the company to Short Stop for $2 million
dollars. An independent accountant has reviewed Trek Travel’s
annual statements and has estimated the future (yearly) cash flows
from its operations to be:
Yr 1: -$100,000, Yr 2: $300,000, Yr 3: $500,000, Yr 4: $600,000, Yr
5: $800,000 and Yr 6: $1,100,000.
Short Stop requires a rate of return of 9% p.a. for an investment
of this kind.
As this project is the purchase of another company, your manager
wishes for you to explain the objective of maximising / enhancing
shareholder wealth. How would the managers of a company achieve
this goal?
4. The last project involves rolling out a personal finance
advisory platform and includes the servicing and maintenance of the
platform. There are two competing clients who would purchase the
platform, however due to legal, licensing and competition
restrictions, Short Stop can only sell the platform to one of the
clients.
The first client is offering a payment structure comprising of
quarterly payments of $200,000 over a 6-year period, starting at
the end of the 1st quarter.
The second client is offering a different payment structure
compromising monthly payments of $60,000 over the 6-year period.
Additionally, they will pay $30,000 at the start of each year for 6
years, starting immediately.
Short Stop estimates that the personal finance advisory platform
can be created from current embedded systems and augmented with
other applications. The required computing hardware can be
delivered and installed immediately after the client has been
approved, at a cost of $3 million to Short Stop. As such, the
rollout of the project can be completed immediately after the
choice of client.
Given a required rate of return on a project such as this is a
nominal 12% p.a., your manager wishes you to advise on which client
Short Stop should choose to maximise value.
Given that the clients offering to pay for the personal finance
advisory platform are providing payment plans that are regular,
detail using diagrams if needed, how payments received at the
beginning of a period differ from payments received at the end of a
period. Provide some discussion on the present value and future
value of these types of cash flows in terms of how they are
calculated
In: Finance
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 $4,400 per month, and the rent is $2,800 per month. In addition, she must make a tax payment of $13,000 in December. The current cash on hand (on December 1) is $850, but Koehl has agreed to maintain an average bank balance of $4,500 - 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 $130,000.
| Sales | Purchases | |||
| December | $160,000 | $25,000 | ||
| January | 42,000 | 25,000 | ||
| February | 58,000 | 25,000 | ||
| I. Collections and Purchases: | ||||||
|
|
|
||||
| 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 | $ | $ | $ | |||
In: Finance
Problem Set 1 You are the owner of a large data-services firm and are deciding on the purchase of a new hardware cooling system that you expect will yield $233,300 in cost-savings per year for the next 15 years. The installation of this cooling system will cost $3,000,000.
1. At face value, does this system seem profitable? By how much?
2. Assume that your company uses a discount rate of 6%.
a. What is the Net Present Value (NPV) of this project?
b. How does the NPV of this project change as you assume a higher or lower discount rate? Why?
c. What is the IRR/ROI of this project?
d. How much should the yearly cost-savings be in order to break even? i. (hint) use goal-seek/what-if analysis
3. Suppose that you decide to finance the purchase of this system through a loan from the bank. The bank is willing to loan this money over an 8 year term at an interest rate of 4% per year.
a. Using a 70/30 debt-to-equity ratio, what is the NPV of this project? i. (hint) calculate the yearly payment using excel function “PMT”
b. How does the NPV of this project change if a larger portion is financed through equity (e.g. debt-to-equity ratio of 60/40)? Why?
In: Finance
Finance is exciting! In this course, we learned how money can
grow through the use of compounding and interest rates and your
growth strategies may now be different. What are your new financial
goals? Would you like to become more liquid, to save more for your
retirement, or to start a new business? Whatever your goals,
finance is right at the core. Think about what you learned in this
course regarding investing to complete this assignment.
Write a two to three (2-3) page paper in which you:
In: Finance