Managerial Finance

Proble.rnb *-qata$ Sherb lb- ? lb-L , rG -4 ? rG-s ,k*!{oh (ntA-er", in Wu* Chapter I 6 Supplv Chains and Working Capi Earnings before interest and taxes for both firms are $30 million, and the effective federai- plus-state tax rate is 4A%. a. What is the return on equiry for each firm if the interest rate on current liabilities is 1070 and the rate on long-term debt is 1392o? b. Assume that the shoft-term rate rises b 2Ao/o, that the rate on new long-terrn debt rises to 16%, and that the rate on existing long-term debt remains unchanged. Wirat would be the return on equity for Vanderheiden Press and Herrenhouse Publishirg under these conditior.rs? c. Which company is in a riskier position? Why? Hasy Problems 1-5 *e$ Cash Management #!ry ReceivablesInvestment (15-3) Cost ofTrade Credit @ Cost ofTrade Credit Accounts Intermediate Problems 6-12 (15-5) Receivables InvesEnent ir6-si Payable Wiiliams & Sons iast year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the ne'r,v system is able to reduce the firm's inventory ievel and increase the firm's inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up? Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company's average accounts receivable? \{hat is the norninal and effective cost of trade credit under the credit terms of 3115, net 30? A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinell, takes 60 days to pay its bi1is. (Because the retailer is an important customer, suppiiers allow the firm to stretch its credit terms.) What is the retailer's etfective cost of trade credit?

.A' chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The companv purchases the inventory under the credit terrns of 2115, net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Snider Industries sells on terms of 2110, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the iOth day and take discounts; the other z0% pay, on average, 50 days after their purchases. a. What is the days sales outstanding? b. What is the average amount of receivables? c. What would happen to average receivables if Snider toughened its collection policy with the result that ail nondiscount customers paid on the 45th day? Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. {1.6-7} Cost ofTrade Credit U15, net 20 2/10, net 60 3/10, net 45 2110, net 45 2/15, net 4A a.