Parramore Corp has $14 million of sales, $2 million of inventories, $2 million of receivables, and $2 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. If Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
3. How much cash would be freed up, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
4. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $4 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm plans to maintain a 60% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		%
   Moderate policy		%
   Relaxed policy		%

b In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
-Select-

1. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
2. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
3. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
4. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
5. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.

Required Lump-Sum Payment

To complete your last year in business school and then go through law school, you will need $20,000 per year for 4 years, starting next year (that is, you will need to withdraw the first $20,000 one year from today). Your uncle offers to put you through school, and he will deposit in a bank paying 8.4% interest a sum of money that is sufficient to provide the 4 payments of $20,000 each. His deposit will be made today.

1. How large must the deposit be? Round your answer to the nearest cent.
   
   
2. How much will be in the account immediately after you make the first withdrawal? Round your answer to the nearest cent.
   
   
   How much will be in the account immediately after you make the last withdrawal? Round your answer to the nearest cent. Enter "0" if required

1. Use the following information provided and the answers to the questions below to predict what the weighted average cost of capital might be in the future. Then, use the WACC to make an informed decision about whether or not the company should invest in a new project. Publicly traded companies are required to produce annual accounting reports (10-K) for the SEC detailing the financial operations of the past year. Suppose that you look up a company and find that they report $6,427 million worth of long-term debt and $882 million worth of shareholders equity. Then you look at yahoo.finance.com and find that the stock is currently trading for $62.50 per share and that there are 200 million shares outstanding. As the result of the most recent tax plan, the company will pay a fixed 21% in taxes. There is no preferred stock.
a. What is the market value of equity?

62.50 x 200M = 12500

b. Use the market value of equity to find the value of the firm. What is the weight of debt and equity?

V= D+E+P= 18927
W_E= E/V= 12500/18927=.66

WD = 6427/18927= .34

c. If the most recent bond issued is currently trading for $1120, has a 6.625% annual coupon, and has 8 years left until maturity what is the company’s current cost of debt?
d. If the most recent annual dividend was $4 and the dividend is expected to grow at a constant rate of 5.5% going forward, what is the company’s current cost of equity?
e. Assume that past information about the company (cost of debt, cost of equity, etc) is a good indicator of future information. Based on the above information what will to company’s WACC be for future projects?
f. Now consider the following project. At the end of the first year of the project they could earn net operating cash flow of $1 million, $2 million the following year and, $3 million in the last year. If the project requires an initial investment (upfront cost) of $5 million, what is the project’s payback, NPV, and IRR? Based on this information, would you advise them to accept the project? Why?
g. The company is considering a different project that could earn net operating cash flows of $500,000 per year for the next 10 years. The project costs $4 million. What is the project’s payback, NPV, and IRR? Would you advise them to accept the project? Why?

Seaborn Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $800 2 1,010 3 1,340 4 1,170 Required: (a) If the discount rate is 11 percent, what is the present value of these cash flows? (b) What is the present value at 17 percent? (c) What is the present value at 26 percent?

Your brother wants to borrow 10,000 from you. He has offered to pay you back $13,250 in a year. If the cost of capital of this investment opportunity is 9% what is its NPV? Should you undertake the investment opportunity? calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

If the cost of capital of this investment opportunity is 12 %   ------

What is its​ NPV? The NPV of the investment is ​$ ______________

Should you undertake the investment​ opportunity? Since the NPV is positive / negative / equal I should take / not take it.

Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

The IRR is __________ %

The maximum deviation allowable in the cost of capital is: ___%

McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax). To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent. Should the project be accepted? questions: 6. Create an after-tax cash flow timeline. (what's the formula?) 7. What are the total expected cash flows at the end of year six? The $4.3 million is an opportunity cost and must be included at date zero as a cash outflow. If the project is accepted, however, the land can be sold in six years for $5.4 million. 8. Find the NPV using the after-tax WACC as the discount rate. 9. Find the IRR. 10. Should the project be accepted? Discuss whether NPV or IRR creates the best decision rule.

The Haverly Company expects to finish the current year with the following financial results, and is developing its annual plan for next year.

The following facts are available.

• Payables are almost entirely due to inventory purchases and can be estimated through COGS, which is approximately 45% purchased material.
• Currently owned assets will depreciate an additional $1103000 next year.
• There are two balance sheet accruals. The first is for unpaid wages. The current payroll of $31 million is expected to grow by 13% next year. The closing date of the year will be six working days after a payday. The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices have not yet been received. This materials accrual is generally about 8% of the payables balance at year end.
• The combined state and federal income tax rate is 42%.
• Interest on current and future borrowing will be at a rate of 10%.

PLANNING ASSUMPTIONS

Income Statement Items

1. Revenue will grow by 12% with no change in product mix. Competitive pressure, however, is expected to force some reductions in pricing.
2. The pressure on prices will result in a 1.5% deterioration (increase) in the next year's cost ratio.
3. Spending in the marketing department is considered excessive and will be held to 20% of revenue next year.
4. Because of a major development project, expenses in the engineering department will increase by 20%.
5. Finance and administration expenses will increase by 7%.

Assets and Liabilities

6. An enhanced cash management system will reduce cash balances by 10%.
7. The ACP will be reduced by 15 days. (Calculate the current value to arrive at the target.)
8. The inventory turnover ratio (COGS/inventory) will decrease by 0.5x.
9. Capital spending is expected to be $5 million. The average depreciation life of the assets to be acquired is five years. The firm uses straight-line depreciation, and takes a half year in the first year.
10. Bills are currently paid in 50 days. Plans are to shorten that to 30 days.
11. A dividend totaling $1.5 million will be paid next year. No new stock will be sold.

Develop next year's financial plan for Haverly on the basis of these assumptions and last year's financial statements. Include a projected income statement, balance sheet and a statement of cash flows. Enter your dollar answers in thousands. For example, an answer of $200 thousands should be entered as 200, not 200000. Round dollar answers and intermediate calculations to the nearest thousand. Round the percentage values to 1 decimal place. Enter all amounts in Income Statement as a positive numbers. Use a minus sign, to indicate a negative cash outflow, or a decrease in cash in Balance Sheet and Cash Flow Statement.

Effect of net income on a firm’s balance sheet Conrad Air Inc. reported net income of $1,365,000 for the year ended December 31, 2020. Show how Conrad’s balance sheet would change from 2019 to 2020 depending on how Conrad “spent” those earnings as described in the scenarios that appear below.
Conrad Air Inc. Balance Sheet as of December 31, 2019
Assets Cash
Marketable securities Accounts receivable Inventories
Current assets
Equipment Buildings
Fixed assets Total assets
$ 120,000 35,000 45,000
$ 130,000 $ 330,000 $2,970,000 1,600,000 $4,570,000 $4,900,000
Liabilities and Stockholders’ Equity Accounts payable
Short-term notes Current liabilities Long-term debt Total liabilities
Common stock Retained earnings
Stockholders’ equity Total liabilities and equity
$ 70,000 55,000
$ 125,000 2,700,000 $2,825,000 $ 500,000 1,575,000 $2,075,000 $4,900,000
a. Conrad paid no dividends during the year and invested the funds in marketable securities.
b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to its stockholders.

in 500 words or more, discuss the limitations of financial statements and financial ratio analysis.

Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Midwest Bank also offers to lend you the $50,000, but it will charge an annual rate of 7.0%, with no interest due until the end of the year. How much higher or lower is the effective annual rate charged by Midwest versus the rate charged by Riverside? A. 0.35% B. 0.50% C. 0.30% D. 0.45%

​(Bond valuation​) You own a bond that pays ​$100 in annual​ interest, with a ​$1,000 par value. It matures in 20 years. Your required rate of return is 12 percent.

a. Calculate the value of the bond.

b. How does the value change if your required rate of return​ (1) increases to 14 percent or​ (2) decreases to 7 ​percent?

c. Explain the implications of your answers in part ​(b​) as they relate to interest rate​ risk, premium​ bonds, and discount bonds.

d. Assume that the bond matures in 4 years instead of 20 years. Recompute your answers in part ​(b​).

e. Explain the implications of your answers in part ​(d​) as they relate to interest rate​ risk, premium​ bonds, and discount bonds.

Tall Oaks Corp. is considering a new machine that requires an initial investment of $480,000 installed, and has a useful life of 8 years. The expected annual after-tax cash flows for the machine are $89,000 for each of the 8 years and nothing thereafter. a. Calculate the net present value of the machine if the required rate of return is 11 percent. b. Calculate the IRR of this project. c. Should Tall Oaks accept the project (assume that it is independent and not subject to any capital rationing constraint)? In your own words, explain your answer

17.

Mr. Thomas has $210 income this year and $180 income next year. The market interest rate is 5% per year. Mr. Thomas also has an investment opportunity in which he can invest $70 this year and receive $90 next year. Suppose Mr. Thomas consumes $90 this year and invests in the project. What will be his consumption next year?

$300

$358

$300

$322