Rank order the following capital project types according to level of risk, from lowest risk to highest risk. (2 points) Expansion New Venture...
Rank order the following capital project types according to level of risk, from lowest risk to highest risk. (2 points)
Expansion
New Venture
Replacement
Find the NPV, IRR, MIRR and Payback for the following projects; use a WACC of 10%. (7 points)
| Year | Project A | Project B |
| 0 | -$130,000 | -$130,000 |
| $60,000 | $35,000 | |
| $40,000 | $40,000 | |
| $40,000 | $45,000 | |
| $25,000 | $70,000 |
| Project A | Project B | |
| NPV | ||
| IRR | ||
| MIRR | ||
| Payback Period |
If projects A & B are mutually exclusive, which would you recommend be accepted?
3. Jiffy Park Corp. has annual sales of $50,705,000, an average inventory level of $15,015,000, and average accounts receivable of $10,015,000. The firm's cost of goods sold is 85% of sales. The company makes all purchases on credit and has always paid on the 30th day. However, it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day. The CFO also believes that sales can be maintained at the existing level but inventory can be lowered by $1,950,000 and accounts receivable by $1,950,000. (6 points)
a. What is Jiffy Park’s cash conversion cycle (CCC) prior to the changes proposed?
b. What is Jiffy Park’s CCC after implementing the suggested changes?
c. What is the net change in Jiffy Park’s CCC given what you just calculated above?
Kruger Industrial Smoothing Inc. sells on terms of 2/15, net 40. Total annual sales are $9,400,000. 25% of the customers pay on the 15th day and take discounts, 30% pay in 40 days, 35% pay in 50 days and the remaining 10% of their customers pay, on average, 70 days after their purchases. (5 points)
a. What is Kruger’s accounts receivable balance? Round to the nearest dollar.
b. The credit manager of Kruger is implementing stricter credit and collections policies and is striving for the following scenario: 40% of customers paying in 15 days taking discounts, 45% paying in 40 days and the remaining paying in 50 days. How much cash will be freed up if Kruger’s CFO can make this happen? Round to the nearest dollar.
c. Why is freeing up cash like this important to any given company?
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