Ch. 18 Questions and Problem
3. Changes in the
Operating Cycle [LO1] Indicate the effect that the following will have on the
operating cycle. Use the letter I to indicate an increase, the letter D for a
decrease, and the letter N for no change:
a. Average receivables goes up.
b. Credit repayment times for customers are increased.
c. Inventory turnover goes from 3 times to 6 times.
d. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f. Payments to suppliers are accelerated.
11. Calculating the
Cash Budget [LO3] Here are some important figures from the budget of Nashville
Nougats, Inc., for the second quarter of 2015:
The company predicts that 5 percent of its credit sales will
never be collected, 35 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.
In March 2015, credit sales were $235,000 and credit
purchases were $161,300. Using this information, complete the following cash
budget:
Ch. 20 Questions and Problems
8. Size of Accounts
Receivable [LO1] The Arizona Bay Corporation sells on credit terms of net 30.
Its accounts are, on average, four days past due. If annual credit sales are
$9.75 million, what is the company’s balance sheet amount in accounts
receivable?
14. Credit Policy
Evaluation [LO2] The Snedecker Corporation is considering a change in its
cash-only policy. The new terms would be net one period. Based on the following
information, determine if the company should proceed or not. Therequired return
is 2.5 percent per period.
Ch. 21 Questions and Problems
4. Using Spot and
Forward Exchange Rates [LO1] Suppose the spot exchange rate for the Canadian
dollar is Can$1.09 and the six-month forward rate is Can$1.11.
a. Which is worth
more, a U.S. dollar or a Canadian dollar?
b. Assuming absolute
PPP holds, what is the cost in the United States of an Elkhead beer if the price
in Canada is Can$2.50? Why might the beer actually sell at a different price in
the United States?
c. Is the U.S.
dollar selling at a premium or a discount relative to the Canadian dollar?
d. Which currency is
expected to appreciate in value?
e. Which country do
you think has higher interest rates—the United States or Canada? Explain.
7. Interest Rates
and Arbitrage [LO2] The treasurer of a major U.S. firm has $30 million to
invest for three months. The interest rate in the United States is .31 percent
per month. The interest rate in Great Britain is .34 percent per month. The
spot exchange rate is £.573, and the three-month forward rate is £.575.
Ignoring transaction costs, in which country would the treasurer want to invest
the company’s funds? Why?
Ch. 26 Questions and Problems
1. Calculating
Synergy [LO3] Pearl, Inc., has offered $357 million cash for all of the common
stock in Jam Corporation. Based on recent market information, Jam is worth $319
million as an independent operation. If the merger makes economic sense for
Pearl, what is the minimum estimated value of the synergistic benefits from the
merger?
2. Balance Sheets for Mergers [LO2] Consider
the following premerger information about Firm X and Firm Y:
Assume that Firm X acquires Firm Y by paying cash for all the
shares outstanding at a merger premium of $6 per share. Assuming that neither
firm has any debt before or after the merger, construct the postmerger balance
sheet for Firm X assuming the use of purchase accounting.
ScholarMatic: Explanation & Answer
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