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  1. A firm currently currently purchases the Economic Order Quantity (Q*) of a particular item from its supplier. The supplier is offering a 3% discount if the firm will buy in lots of 1,000 instead.

    The firm expects to sell 5,000 units of the item per year. It's cost is $50 per unit and the cost to place an order is about $20 per order. The annual carrying costs are 30% of the inventory value.

    Calculate the firm's net savings from taking the discount.
    Enter your result rounded to the nearest integer. Do not include a dollar sign.

Net savings from taking the discount = Reduction in purchase price - TIC discount quantity + TIC optimal quantity

 

  •  

Sales (units) = 5,000

Cost price (p) per unit = 50

Cost per order (o) = 20

Carrying cost (h) = 30% of inventory cost = 30% * 50 = 15

EOQ =  = 115.47 units = 116 units approx.

When EOQ is ordered:

Nos. of orders = 5000/116 = 43.10 = 44 orders approx

Total Inventory Cost = Total Purchase price + Ordering Cost + Carrying Cost

= (5000*50) + (44*20) + (15*116/2) = 251740

When ordered qty is 1000 units:

Nos. of orders = 5000/1000 = 5 orders

Cost per unit = 50(1-.3) = 48.5 per unit (Disc of 30% is allowed in this case)

Carrying Cost = 30%*48.5 = 14.55

Total Inventory Cost = Total Purchase price + Ordering Cost + Carrying Cost

= (5000*48.5) + (5*20) + (14.55*1000/2) = 249875

Therefore, savings = 251740-249875 = 1865.

 

 

  1. A firm uses the EOQ model to determine its optimal reorder quantity.The firm sells 93,910 units per year, and there is a 9 day lag between ordering and receiving new inventory.What is the order point (also known as reorder point)?Assume a 365 day year, round to the nearest integer, enter with no punctuation.

 

  •  

Sales per year = 93910 units

Lead time = 9 days

Sales / day = 93910/365 = 257 units/day approx

Therefore, Reorder point = Sales/day * Lead time = 257*9 = 2313 units.

 

  1. 3. Refer to the firm's financial statements. If the firm adopts a more stringent collections policy, it expects to reduce DSO to 28 days, without having a significant effect on sales. What will be the firms average accounts receivable balance under the new policy?
    Round your result to the nearest integer, and enter it with no punctuation of any kind.
    DSO = accounts receivable / (annual credit sales / 365)
    Assume all sales are credit sales.

https://bblearn.nau.edu/bbcswebdav/pid-1335100-dt-content-rid-10075092_1/xid-10075092_1

Answer: 3,500

 

 

 

  •  

DSO = 28 days

But DSO = Account Receivables

Annual Credit Sales/365

From the Finanicials:

28 days =      x     where, x= accounts receivables

  1.  

Therefore, x= 14000

The firms new account receivable balance will be 14,000

 

A firm buys inventory from suppliers that offer terms of 4/17 net 35. The firm does not currently take the offered discount. What is the "nominal annual cost" to the firm of not taking the discount?
Enter your result rounded to the nearest integer %. Assume a 365 day year.

 

Answer:

 

Nominal annual cost = (4*100/(100*52/365) =0.280769

Thus nominal annual cost = 28%

 

 

 

 

Please me yours! If different!

a.

Continue to pay on day 30.

b.

Borrow from the bank and pay on day 30.

c.

Borrow from the bank and pay on day 10 to get the discount.

 

 

  1. Unlike the Baumol model, the Miller-Orr model of cash management assumes that the firm's net cash flows are known and constant

False or true

 

  1. A firm has marginal tax rates as follows:

Federal tax rate

31%

State tax rate

5%

The firm in considering purchasing a corporate commercial paper issue with a before-tax return of 7% for its marketable securities portfolio. Calculate the after-tax return for the commercial paper.

 

The after tax return of the commercial paper = 7(1-.31) = 4.83%

 

 

  1. Relative to short-term debt, the use of long-term debt usually results in __________.
    Check all that are correct.

Answer

 

a.

Lower interest costs

 

b.

Higher interest costs

c.

Lower profitability

 

d.

Higher profitability

 

e.

Lower risk

f.

Higher risk

 

 

Check all of the following that are correct for a firm that holds safety stocks (above the EOQ optimal quantity).

Answer

a.

Carrying costs are higher.

b.

Transactions costs are higher.

c.

Total inventory costs (TIC) is higher.

d.

The time period between reorders decreases.

A firm sells $360,000 of goods per year on credit, on terms of 2/15 net 35. If 39% of customers take the discount and pay in 15 days, and the remainder pay the full invoice amount in 35 days, what is the firm's DSO (day's sales outstanding)?
Round your result to the nearest integer

Answer:

For 35 days period, we assume that the remaining 61% of the customers who pay in 35 days are the debtors.

Hence, DSO = (360000*61%)*35 days

                    360000

           = 28.35 days

 

  1. Which of the following it not a typical characteristic of marketable securities?

Answer

 

a.

High rate of return

 

b.

Safe from default risk

 

c.

Highly liquid

 

d.

Short-term to reduce "interest rate" risk

 

 

 

Suppose a firm's supplier offer terms of 2/10 net 30. The firm often pays its invoices on day 20, and does not qualify for the discount as a result. What effect does this early payment have on the cost to the firm of not taking the offered discount?

Answer

 

a.

decreases the cost of foregoing the discount

 

b.

no effect on the cost of foregoing the discount

 

c.

increases the cost of foregoing the discount

  1. A firm sells $335,876 of goods per year on credit. If customers take an average of 31 days to pay, what is the firm's average accounts receivable balance? (Assume a 365 day year).
    Round your answer to the nearest integer.Enter the result without any punctuation (i.e. dollar sign or commas).

   Answer:

    Sales = 335,876        

    Avg Account Receivables = Sales * Time taken by customers to pay

                                           365 days

                             = (335786 * 31)/365 = 28,519

 

  1. A firm buys $273,750 per year from suppliers that offer terms of 1/10 net 30. The firm does not currently take the offered discount. If the firm can borrow against a line of credit at the bank at an interest rate of 15%, it should:
    Assume a 365 day year.

Answer

a.

Continue to pay on day 30.

b.

Borrow from the bank and pay on day 30.

c.

Borrow from the bank and pay on day 10 to get the discount.

 

 

Solution: Discount received if paid within 10 days = 273750*1% = $2737.50

If borrowed from bank, then interest rate for 10 days =(273750*15%)*(10/365)= $1125

Hence the firm is in a better off position if it borrows from bank and pays within 10 days, as it saves $1612.50

  1.  Enter the result in percentage format with one decimal place. For example, enter 4.5%

 

 

 

 

 

  1. A firm with a high level of "cash and marketable securities" on its balance sheet is most likely to be using the _______ net operating working capital policy.

AnswerPLEASE ENTER YOURS!

a.

restricted

b.

relaxed

c.

moderate

  1. A firm's cash conversion cycle has increased by 10 days over the last year. Check all the items below that could account for the observed increase.

Answer

a.

the firm's customers pay more quickly than in the past

b.

the firm's customers pay more slowly than in the past

c.

the firm's inventory sells more quickly than in the past

d.

the firm's inventory sells more slowly than in the past

e.

the firm pays its supplier's more quickly than in the past

f.

the firm pays its supplier's more slowly than in the past

 

 

 

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  1. A firm xxxxxxx currently purchases xxxxxxx Economic Order xxxxxxx xxxxxxx of xxxxxxx particular item xxxxxxx its supplier. xxxxxxx supplier xxxxxxx xxxxxxx a 3% xxxxxxx if the xxxxxxx will buy xxxxxxx lots of xxxxxxx instead.


    Calculate xxxxxxx firm's xxxxxxx xxxxxxx from taking xxxxxxx discount.
    Enter xxxxxxx result rounded xxxxxxx the nearest xxxxxxx Do not xxxxxxx a dollar xxxxxxx xxxxxxx savings xxxxxxx taking the xxxxxxx = Reduction xxxxxxx purchase xxxxxxx xxxxxxx TIC discount xxxxxxx + TIC xxxxxxx quantity

     

  •  
  • Sales xxxxxxx year = xxxxxxx units

    Lead xxxxxxx = 9 xxxxxxx style="margin-left:18.0pt;">Sales / xxxxxxx xxxxxxx 93910/365 xxxxxxx 257 units/day xxxxxxx style="margin-left:18.0pt;">Therefore, Reorder xxxxxxx = xxxxxxx xxxxxxx Lead time xxxxxxx 257*9 = xxxxxxx units.

     

    1. Round xxxxxxx result to xxxxxxx nearest xxxxxxx xxxxxxx enter it xxxxxxx no punctuation xxxxxxx any kind.
    2.  
    3. DSO = xxxxxxx days

      But DSO xxxxxxx Account Receivables

      Annual xxxxxxx Sales/365

      From the xxxxxxx days = xxxxxxx where, x= xxxxxxx xxxxxxx value="NaN"> 

    Therefore, xxxxxxx 14000

    The firms xxxxxxx account receivable xxxxxxx will xxxxxxx xxxxxxx border="0" cellpadding="0" xxxxxxx firm buys xxxxxxx from suppliers xxxxxxx offer terms xxxxxxx 4/17 net xxxxxxx The firm xxxxxxx xxxxxxx currently xxxxxxx the offered xxxxxxx What is xxxxxxx "nominal xxxxxxx xxxxxxx to the xxxxxxx of not xxxxxxx the discount?

     

    Answer:

     

    Nominal annual xxxxxxx = (4*100/(100*52/365) xxxxxxx nominal xxxxxxx xxxxxxx = 28%

     

     

     

     

    Please xxxxxxx yours! If xxxxxxx border="0" cellpadding="0" xxxxxxx name="mc-ans-_26093416_1" type="radio" xxxxxxx />

    a.

    Continue to xxxxxxx on day xxxxxxx xxxxxxx type="radio" xxxxxxx />

    b.

    Borrow from xxxxxxx bank and xxxxxxx on xxxxxxx xxxxxxx checked="checked" name="mc-ans-_26093416_1" xxxxxxx value="2" />

    c.

    Borrow xxxxxxx the bank xxxxxxx pay on xxxxxxx 10 to xxxxxxx the discount.

     

     

    A firm xxxxxxx marginal tax xxxxxxx xxxxxxx follows:

    Federal tax xxxxxxx tax xxxxxxx xxxxxxx in considering xxxxxxx a corporate xxxxxxx paper issue xxxxxxx a before-tax xxxxxxx of 7% xxxxxxx its marketable xxxxxxx xxxxxxx Calculate xxxxxxx after-tax return xxxxxxx the commercial xxxxxxx after xxxxxxx xxxxxxx of the xxxxxxx paper = xxxxxxx = 4.83%

     

     

    1. Check all xxxxxxx are correct.

    Answer

     

    b.

    Higher interest xxxxxxx height="22" src="file:///C:/Users/ANKITA/AppData/Local/Temp/msohtmlclip1/01/clip_image005.png" xxxxxxx />

    c.

    Lower profitability

     

    d.

    Higher xxxxxxx risk

    f.

    Higher xxxxxxx all of xxxxxxx xxxxxxx that xxxxxxx correct for xxxxxxx firm that xxxxxxx safety xxxxxxx xxxxxxx the EOQ xxxxxxx quantity).

    Answer

    a.

    Carrying xxxxxxx are higher.

    c.

    Total inventory xxxxxxx (TIC) xxxxxxx xxxxxxx height="22" src="file:///C:/Users/ANKITA/AppData/Local/Temp/msohtmlclip1/01/clip_image005.png" xxxxxxx />

    d.

    The time xxxxxxx between reorders xxxxxxx firm sells xxxxxxx of goods xxxxxxx year on xxxxxxx xxxxxxx terms xxxxxxx 2/15 net xxxxxxx If 39% xxxxxxx customers xxxxxxx xxxxxxx discount and xxxxxxx in 15 xxxxxxx and the xxxxxxx pay the xxxxxxx invoice amount xxxxxxx 35 days, xxxxxxx xxxxxxx the xxxxxxx DSO (day's xxxxxxx outstanding)?
    Round xxxxxxx result xxxxxxx xxxxxxx nearest integer

    Answer:

    For xxxxxxx days period, xxxxxxx assume that xxxxxxx remaining 61% xxxxxxx the customers xxxxxxx pay in xxxxxxx xxxxxxx are xxxxxxx debtors.

    Hence, DSO xxxxxxx (360000*61%)*35 days

                        xxxxxxx = xxxxxxx xxxxxxx value="7">Which of xxxxxxx following it xxxxxxx a typical xxxxxxx of marketable xxxxxxx border="0" cellpadding="0" xxxxxxx rate of xxxxxxx xxxxxxx default xxxxxxx liquid

     

    d.

    Short-term to xxxxxxx "interest rate" xxxxxxx a xxxxxxx xxxxxxx offer terms xxxxxxx 2/10 net xxxxxxx The firm xxxxxxx pays its xxxxxxx on day xxxxxxx and does xxxxxxx xxxxxxx for xxxxxxx discount as xxxxxxx result. What xxxxxxx does xxxxxxx xxxxxxx payment have xxxxxxx the cost xxxxxxx the firm xxxxxxx not taking xxxxxxx offered discount?

     

    c.

    increases xxxxxxx cost of xxxxxxx the discount

    1. 335,876 xxxxxxx goods per xxxxxxx xxxxxxx credit. xxxxxxx customers take xxxxxxx average of xxxxxxx days xxxxxxx xxxxxxx what is xxxxxxx firm's average xxxxxxx receivable balance? xxxxxxx a 365 xxxxxxx year).
      Round xxxxxxx answer to xxxxxxx xxxxxxx integer.Enter xxxxxxx result without xxxxxxx punctuation (i.e. xxxxxxx sign xxxxxxx xxxxxxx Answer:

          Sales xxxxxxx 335,876        

          Avg xxxxxxx Receivables = xxxxxxx * Time xxxxxxx by customers xxxxxxx pay

                                                 365 xxxxxxx xxxxxxx (335786 xxxxxxx 31)/365 = xxxxxxx value="9">A firm xxxxxxx $273,750 xxxxxxx xxxxxxx from suppliers xxxxxxx offer terms xxxxxxx 1/10 net xxxxxxx The firm xxxxxxx not currently xxxxxxx the offered xxxxxxx xxxxxxx the xxxxxxx can borrow xxxxxxx a line xxxxxxx credit xxxxxxx xxxxxxx bank at xxxxxxx interest rate xxxxxxx 15%, it xxxxxxx /> Assume a xxxxxxx day year.

    Answer

    a.

    Continue xxxxxxx pay on xxxxxxx 30.

    b.

    Borrow from xxxxxxx bank and xxxxxxx on day xxxxxxx style="width:30px;">

     

     

    Solution: xxxxxxx received if xxxxxxx within 10 xxxxxxx = 273750*1% xxxxxxx $2737.50

    If borrowed xxxxxxx bank, then xxxxxxx xxxxxxx for xxxxxxx days =(273750*15%)*(10/365)= xxxxxxx the firm xxxxxxx in xxxxxxx xxxxxxx off position xxxxxxx it borrows xxxxxxx bank and xxxxxxx within 10 xxxxxxx as it xxxxxxx $1612.50

    1.  Enter xxxxxxx xxxxxxx in xxxxxxx format with xxxxxxx decimal place. xxxxxxx example, xxxxxxx xxxxxxx style="margin-left:18.0pt;"> 

       

       

       

      1. b.

        relaxed

        A firm's xxxxxxx conversion cycle xxxxxxx increased xxxxxxx xxxxxxx days over xxxxxxx last year. xxxxxxx all the xxxxxxx below that xxxxxxx account for xxxxxxx observed increase.

        Answer

        a.

        the firm's xxxxxxx pay xxxxxxx xxxxxxx than in xxxxxxx past

        b.

        the xxxxxxx customers pay xxxxxxx slowly than xxxxxxx the past

        c.

        the firm's xxxxxxx sells more xxxxxxx than xxxxxxx xxxxxxx past

        d.

        the xxxxxxx inventory sells xxxxxxx slowly than xxxxxxx the past

         

         

         

         
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