Foundations of Financial Management 10th Canadian edition Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta - Solutions

If you borrow $4,000 at $500 interest for one year, what is your annual interest cost for the following payment plan?a. Annual paymentb. Semiannual paymentsc. Quarterly paymentsd. Monthly payments
Morrisette Records' commercial paper is currently selling at 98.512 percent of maturity value; it matures in 75 days. What annualized yield is it offering to investors?
Calculate the cost of discounting a $100,000 bankers' acceptance if it is due in 90 days and is sold at $97,915. Ignore bank fees.
Blue Grass Filters requires additional financing. Presently, it pays for all purchases on the discount date under terms of 2/15, net 75. Its banker will lend funds at 11 percent.a. Should Blue Grass Filters obtain funding from the bank or by forgoing the cash discount?b. Assuming the bank is the
The Reynolds Company buys from its suppliers on terms of 2/10, net 40. Reynolds has not been utilizing the discount offered and has been taking 55 days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold's credit rating has not been hurt.Mr. Duke, Reynolds Company's
Burt's Department Store needs $300,000 to take a cash discount of 3/10, net 70. A banker will loan the money for 60 days at an interest cost of $8,100.a. What is the annual rate on the bank loan?b. How much would it cost (in percentage terms) if Burt's did not take the cash discount and paid the
Neveready Flashlights Inc. needs $300,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at an interest cost of $5,500.a. What is the annual rate on the bank loan?b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid
Rockford Filing Ltd. requires $1 million in financing for a 45 day period. Three alternatives are being considered. Which alternative should be selected?a. Establish a line of credit with the bank at an interest rate of 10 percent. The bank will charge an annual commitment fee of 1 percent to
Maceo Bakers requires $500,000 in financing for a 90-day period. Three alternatives are being considered. Which alternative should be selected?a. Establish a line of credit with the bank at an interest rate of 8 percent. The bank will charge a fee of $5,000 to establish the line of credit.b.
Ajax Box Company is negotiating with two banks for a $100,000 loan. Midland Bank requires a 20 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Central Bank requires a 10 percent compensating balance and does not discount the loan, but it wants
Marla Maple Sugar Company sells to the 12 accounts listed below.Trump Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers
Towers Arcades currently borrows $560,000 per month from its bank on the strength of receivables, which average $800,000 per month. Credit terms are net 30. The bank's interest rate is 10 percent annually, with an additional charge of .5 percent to process the accounts receivable used as security.
The treasurer for Bolton Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Canadian bond futures contracts at $72,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 6.5
Megahurtz International Car Rentals has rent-a-car outlets throughout the world. It keeps funds for transaction purposes in many foreign currencies. Assume that in 2015 it held 100,000 reals in Brazil worth 42,000 dollars. It earned 12 percent interest, but the real declined 20 percent against the
Manning Alternatives presently sells to its customers on terms of 2/10, net 30. Its average collection period is 14 days, with 85 percent currently taking the discount.All sales are credit sales. Upper management has expressed concern about sluggish sales, and the marketing department would like a
Happy Trail Adventure Products is reevaluating its credit policy. Current terms are 2/10, net 30, resulting in annual sales of 400,000 units. Cash sales that qualify for the discount account for 10 percent of sales, 65 percent qualify for the discount by paying on the lOth day, and the other 25
Discuss the major types of collateralized short-term loans.
What is the major advantage of a bankers' acceptance?
Lipto Biomedic has credit sales of $740,000 yearly with credit terms of net 60 days, with an average collection period of 75 days. Lip to does not offer a discount for early payment.a. What is the average receivables balance? What is the receivables turnover?b. If Lipto offered a 3 percent discount
Maddox Resources has credit sales of $180,000 yearly with credit terms of net 30 days, which is also the average collection period. Maddox does not offer a discount for early payment, so its customers take the full 30 days to pay.a. What is the average receivables balance? What is the receivables
In the previous problem, if inventory had only been four times,a. What would be the new value for inventory investment?b. What would be the return on investment? You need to recompute the total investment and the total costs of the campaign to work toward computing income after taxes. Should the
Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $600,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:Accounts receivable .........5xInventory
Reconsider Comiskey Fence. Assume the average collection period is 120 days. All other factors are the same (including 12 percent uncollectible). Should credit be extended?Data from ReconsiderComiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers
Henderson Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 8 percent of the new accounts will be uncollectible.Collection costs are 5 percent of new sales, production costs are 78 percent of sales, and accounts receivable turnover is five times.
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection
Wontaby Ltd. is extending its credit terms from 30 to 45 days. Sales are expected to increase from $4.7 million to $5.8 million as a result. Wontaby finances short-term assets at the bank at a cost of 10 percent annually. Calculate the additional annual financing cost of this change in credit terms.
Bugle Boy Company has an opportunity cost of funds of 10 percent and a credit policy based on net 45 days. If all of its customers adhere to the stated terms and annual sales increase from $3.96 million to $5.82 million, what will be the increased cost of funds tied up in accounts receivable?
Mervyn's Fine Fashion has an average collection period of 42 days. The accounts receivable balance is $86,302. What is the value of credit sales?
In the previous problem, if accounts receivable change in 2016 to $138,600, and credit sales increase to $1,204,500, should we assume that the firm has a more or less lenient credit policy?Previous ProblemDarla's Cosmetics had annual credit sales of $1,003,750 and an average collection period of
Darla's Cosmetics had annual credit sales of $1,003,750 and an average collection period of 36 days in 2015. What was the company's average accounts receivable balance?
Sanders' Prime Time Lighting Co. has credit sales of $1,875,000 and accounts receivable of $195,205. Compute the value for the average collection period.
A 91-day Treasury bill with a face value of $1 million is sold to yield 5.27 percent.a. At what price did the T -bill sell if the yield was quoted by the market?b. At what price did the T -bill sell if the yield was an effective annual yield?
A bankers' acceptance is discounted by Canmex Inc. at 98.71 of par. It matures in 60 days.a. What is the cost to the company on a nominal basis?b. What is the effective annual cost to the company?
Differentiate between the money market and the Eurobond market.
Lett's commercial paper is presently selling at a discount. It sells for 97.29 of par and matures in 120 days.a. Calculate its yield as quoted in the market.b. Calculate its effective annual yield.
Why are U.S. money market rates generally lower than Canadian money market rates on instruments of similar risk?
Ron's cheque book shows a balance of $400. A recent statement from the bank (received last week) shows that all cheques written as of the date of the statement have been paid, except numbers 325 and 326, which were for $35.00 and $58.00, respectively. Since the statement date, cheques 327, 328, and
Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She suggests that with a concentration banking system, your float can be reduced by three days on average. You, of course, are delighted (you're not sure why), but you do know your
Leeft Bank offers to reduce the collection time for your company's daily cash receipts by two days with its cash management system. This service will cost you $15,000 per year. Currently, short-term money market rates average 5 percent. If you anticipate annual sales of $46.355 million, would you
The current cash management system of Low Ash Cat Foods requires five days to collect its daily receipts of $225,000. Now Bank offers to reduce the collection time by four days for an annual fee of $49,000. If the opportunity cost of funds is 6 percent, should Low Ash accept the bank's offer?
How can a firm operate with a negative cash balance on its corporate books?
Aurora Electrical Company of Yellowknife ships wind turbines throughout the country. Mr. Beam, the financial manager, has determined that through the establishment of local collection centres around the country, he can speed up the collection of payments by two days. Furthermore, the cash
Why are cash flows of more interest than income to the treasury manager?
Sheila's Society Clothing Manufacturer has collection centres around the country to speed up cash collections. The company also makes its disbursements from remote disbursement centres, so cheques written by Sheila's take longer to clear the bank. Collection time has been reduced by two and
Power Play Inc. has seen profits drop acutely because of the economic downturn. To enhance profitability and to preserve cash, Power Play is considering shortening its credit period and eliminating its cash discount. Terms are currently 3/10, net 60 and would be changed to net 30. Currently, 60
OB1 Sabres Ltd. has determined that product sales are not what they could be because they have unused capacity. As a result, the company is considering adjusting its marketing strategy. At present, all sales to distributors are on a cash basis, but the competition offers credit terms. Similar
First Picked Fruits Inc. is considering two alternatives to stimulate sales. Currently, the policy is net 30 and the average collection period is 40 days, with bad debt losses of 1.25 percent of sales. All sales are credit sales and are expected to be $6.1 million annually under this policy.Under
Nowlin Pipe & Steel has expected sales of 72,000 pipes this year, an ordering cost of $6.00 per order, and carrying costs of $2.40 per pipe.a. What is the economic ordering quantity?b. How many orders will be placed during the year?c. What will the average inventory be?d. What is the total cost
Friendly Home Services expects sales of baskets to be $125,000 this year, an ordering cost of $75.00 per order, and carrying costs of $3.00 per basket. The price of a basket is $25.a. What is the economic ordering quantity?b. How many orders will be placed during the year?c. What will the average
Fisk Corporation is trying to improve its inventory control system and has installed an online system at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.20 per unit.a. What is the economic ordering quantity?b. How many
Higgins Athletic Wear has expected sales of 22,500 units a year, carrying costs of $1.50 per unit, and an ordering cost of $3.00 per order.a. What is the economic order quantity?b. What is average inventory? What is the total carrying cost?c. What is the total inventory cost?d. Assume an additional
North Pole Snowmobile is considering a switch to level production. Under level production, cost efficiencies would occur and aftertax costs would decline by $30,000, but inventory would increase by $250,000. North Pole would have to finance the extra inventory at a cost of 13.5 percent.a. Should
Minty Air fresheners Ltd. maintains an inventory of bottles with chemical disinfectants to meet its annual demand for 81,600 bottles to service restrooms. Each package costs $4.75, and the order cost is $106.25 per order. Carrying costs have been identified as $1.50 per package. Minty Air
Downey Disks is experiencing some inventory control problems. The manager currently orders four times each year with the annual purchase of the inventory costing $200,000. Each inventory item costs $5, ordering costs are $125 and each item costs $2.50 to carry. What is the opportunity cost of the
A borrower is often confronted with a stated interest rate and an effective interest rate. What is the difference, and which one should the financial manager recognize as the true cost of borrowing?
Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory turnover from 10 to 15 times per year. Its annual cost of goods sold is expected to be $6 million, and its financing costs are at 11 percent. Should Baktoo Basics consider an expenditure of
Logan Distributing Company of Lethbridge sells fans and heaters throughout the west. Joe Logan, the president of the company, is thinking about changing the credit policies offered by the firm to attract customers away from competitors.The current policy calls for a 1/10, net 30, and the new policy
Assume that you are risk adverse and have the following three choices. Which project would you select? Compute the coefficient of variation for each choice. Standard deviation Expected value $1,800 $900 1,400 2,000 1,500 500
Gifford Western Wear makes blue jeans and cowboy shirts. It has seven manufacturing outlets in British Columbia and Alberta. It is seeking to diversify its business and lower its risk. It is examining three companies-a toy company, a boot company, and a highly exclusive jewellery store chain. Each
Transoceanic Airlines is examining a resort motel chain to add to its operations. Before the acquisition, the normal expected outcomes for the firm were as follows:After the acquisition the expected outcomes for the firm would bea. Compute the expected value, standard deviation, and coefficient of
What has been the composition of long-term financing by corporations over the past decade?
Jimmy has the following two investments in his portfolio:a. Which investment is riskier by itself and in a portfolio sense?b. What is the expected return of the portfolio?c. With a correlation coefficient of +0.55, what is the standard deviation of the portfolio?d. What is the beta of the
Indigo Ltd. is faced with three investment proposals with the following information:The cash flow is after tax and includes the tax savings on CCA. Indigo has a cost of capital of 10 percent, the market portfolio is expected to earn 11 percent, and the risk-free rate is 3 percent.a. Which
Ace Trucking Company is considering buying 50 new diesel trucks that are 15 percent more fuel-efficient than the ones the firm is now using. Mr. King, the president, has found that the company uses an average of 30 million litres of diesel fuel per year at a price of $1.08 per litre. If he can cut
Mr. Boone is looking at a number of different types of investments for his portfolio. He identifies eight possible investments.a. Graph the data in a manner similar to Figure 13-11.b. Draw a curved line representing the efficient frontier.c. What two objectives do points on the efficient frontier
Why do we have the four pillars of finance concept in Canada?
Discuss tests you would develop to prove market inefficiencies.
Discuss the characteristics that would make a market efficient.
What is meant by abnormal profits?
Why does the Toronto Stock Exchange have listing requirements? What are the major requirements? How do they compare with the listing requirements of the other exchanges?
What is the difference between organized exchanges and over the-counter markets?
Discuss the importance of security markets for both the corporation and the shareholder or bondholder.
Comment on the use of external versus internal sources of funds by corporations.
What implications are there for the capital markets as the federal government reduces/increases its accumulated debt?
Discuss the average maturity of the federal government's marketable interest bearing public debt and the implications for the money and capital markets if the present trend continues.
How does the economy influence the amount of funds raised by the federal government in the long-term markets?
Name the major competitors for funds in the capital markets.
Sam McGee, the financial analyst in the service of Labarge Ltd., is investigating the Midnight Sun project that is quite unlike any of its existing projects. It would require an initial investment of $320,000 and the probable increase in current assets would be 15 percent of this initial
Fine Winehouse is analyzing an investment very different from its current investments. The initial investment would be $500,000 with current liabilities increasing by $30,000. The anticipated revenues have been estimated at $150,000 a year for the six years of the project's life. At end of six
What are the implications of the changing regulations governing the Canadian securities industry?
Discuss the changes currently occurring in Canada's financial and regulatory environment.
Music Box Records uses the MIRR. The firm has a cost of capital of 10 percent. The project being analyzed has a $39,000 initial investment and is expected to produce the following case flows:Year ................Cash Flow1 ......................$16,0002 ........................12,3003
The Caffeine Coffee Company uses the MIRR. The firm has a cost of capital of 12 percent. The project being analyzed has a $27,000 initial investment and is expected to produce the following case flows:Year ................Cash Flow1 .........................$15,0002
Keller Construction is considering two new investments. Project E calls for the purchase of earth-moving equipment. Project H represents the investment in a hydraulic lift. Keller wishes to use a NPV profile in comparing the projects. The investment and cash flow patterns are as follows:a.
Luft Watch Company is considering an investment of $15,000, which produces the following inflows:Year ............Cash flow1 ....................$8,0002 ......................7,0003 ......................4,000You are going to use the NPV profile to approximate the value for the IRR. Please follow
XYZ Corporation has decided to sell one of its windmills for $5 million. This building is part of the Class 3 (5 percent) CCA pool, and XYZ had it built five years ago at a cost of $4.5 million. XYZ's tax rate is 25 percent. Zebra uses 12 percent as its cost of capital.a. If the Class 3 UCC at the
A $95,000 investment is to be amortized for tax purposes using the maximum CCA available.a. If the investment represents a fleet of automobiles for a telephone utility, what will be the allowable CCA rate?b. How much will the addition of the automobiles increase the allowable dollar CCA in Year 1?
Coastal Shipping Corporation has decided to sell one of its vessels for $1 million.This vessel is part of the Class 7 (15 percent) CCA pool, and Coastal had it built three years ago at a cost of $1.2 million. Coastal's tax rate is 25 percent. Coastal uses 10 percent as its cost of capital.a. If the
Nexus Corp. has made a $1 ,500,000 investment that is to be amortized for tax purposes using the maximum CCA available.a. If the investment represents an aircraft, what will be the allowable CCA rate?b. How much will the addition of the aircraft increase the allowable dollar CCA in Year 1? in Year
The Thorpe Corporation will purchase a $50,000 piece of production machinery with an estimated useful life of five years. The new machine is expected to allow an increase in sales of $80,000 per year, while increased incremental costs amount to $45 ,000 per year. The firm is in a 25 percent income
Acme Auto Parts Ltd. has gained approval for an eligible scientific research and experimental development on Cape Breton Island and is intending to invest $1.7 million.a. Assuming the tax rules governing ITCs and CCA remain the same as represented in this chapter, compute the ITC available to
Follett Enterprises has purchased three greenhouses over the past five years, but today it sold them all for $500,000. Five years ago, Follett purchased the first greenhouse for $300,000, two years later it purchased the second for $250,000, and last year it purchased one for $400,000. Follett
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $10,500
Albert I. Stein Ltd. is considering the investment of $75,000 in a new machine that will allow it to do research on developing a new microchip for use in video games. The machine will be assigned to CCA Class 8. The firm is considered a Canadian controlled private corporation eligible for the small
Pierce Labs, located in Gaspe Bay, purchased a radio communication system three years ago for $310,000. It has a potential buyer for the system who is willing to pay $85,000. A new system will cost $390,000 and is eligible for a 15 percent ITC.It is estimated the new system would provide the
On graduating from college, Steven MacLean joined the financial analysis section of a large Canadian industrial concern, Ontario Corporation. Soon after, MacLean was assigned to help in the financial analysis of a proposed acquisition by Ontario of a firm in a business unlike any of Ontario's
Signs For Fields Machinery Ltd. is considering the replacement of some technologically obsolete machinery with the purchase of a new machine for $72,000. Although the older machine has no market value, it could be expected to perform the required operation for another 10 years. The older machine
H. Improvements Ltd. is evaluating the replacement of an older machine. There are two possible replacements under consideration-the OuOu and the Major OuOu. The existing machine was purchased a few years ago for $32,000 and currently has a book value of $8,500. If sold today, it would probably be
The Jagged Pill Ltd. has placed a $60,000 nonrefundable deposit on a new venture. The deposit can be expensed immediately. This has entitled Jagged Pill to additional information (of a trade-secret variety) and allows Jagged Pill to purchase a unique machine for an additional $525,000.From the
Galaxydoughs Tea Ltd. has been considering a special investment for some time. This project will require an immediate capital expenditure of $1 million for required equipment. Galaxydoughs Tea will house the equipment in an unused warehouse. Galaxydoughs Tea has no other intended use for the

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Foundations of Financial Management 10th Canadian edition Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta - Solutions

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