**Essay Instructions**: **Financial** **management**- problem 1 through 23

1. Cyber Security system had sales of 3000 units at $50 per unit last year. The marketing manager project a 20 percent increase in unit volume sales this year with 10 percent price increase. Returned merchandise will represent 6 percent of total sales. What is your dollar sales projection for this year?

2. On December 31 of last year, Wolfson Corporation had in inventory 400 of its of its product, which cost $21 per unit to produce. During January, the company produced 800 units at a cost of$24 per unit. Assuming that Wolfson Corporation sold 700 units in January, what was the cost of goods sold (Assume FIFO inventory account)?

3. At the end of January, Mineral Labs had an inventory of 725 units, which cost $10 per unit to produce. During February the company produced 650 units at a cost of $14 per unit. If the firm sold 1000 units in February, what was the cost of goods sold? A. Assume LIFO inventory accounting B. Assume FIFO inventory accounting

4. Lansing Auto Parts, Inc. has projected sales of $25,000 in October, $35,000 on November, and $30,000 in December. Of the company’s sales, 20 percent are paid for by cash and 80 percent are sold on credit. The credit sales are collected one month after sales. Determine collections for November and December. Also assume that the company’s cash payments for November and December are $30,400 and $29,800, respectively. The beginning cash balance in November is $6,000, which is desired minimum balance. Prepare a cash budget with borrowing needed or repayments in November and December. ( you will need to prepare a cash receipts schedule first.)

5. what is the present value of:

a. $8,000 in 10 years at 6 percent? ( b) $16000 in 5 years at 12 percent? (C) $25,000 in 15 years at 8 percent?

6. If you invest $12,000 today ,how much will you have:

a. In 6 years at 7 percent? B. In 15 years at 12 percent? C. In 25 years at 10 percent?

d. In 25 years at 10 percent ( compounded semiannually?

7. Barry’s Steriods company has $1,000 par value bonds outstanding at 12 percent interest . the bonds will mature in 50 years . compute the current price of the bonds if the percent yield to maturity is:

a. 11 percent b. 13 percent c. 16 percent.

8. if bonds paying 10 percent for 20 years interest the interest rate in the market go from 10 percent to 7 percent. A. what was the bonds price at 10 percent? B. what is the bond price at 7 percent?

C. what would be the percentage return on the investment if you bought when rates were 10 percent and sold when rates were 7 percent?

9. Collins systems Inc. is trying to develop an asset financing plan . the firm has $300,000 in temporary current assets and $200,000 in permanent current assets. Collins also has $400,000 in fixed assets.

A. constructs two alternative financing plan for the firm. One of the plans should be conservative with 80 percent of assets financed by long-term sources and the rest financed by short ??"term source. The other plan should be aggressive, with only 30 percent of assets financed by long-term sources and the remaining assets financed by short-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short ??"term financing. Compute the annual interest payment under each plane B. Given that Collins’s earnings before interest and taxes are $180,000, calculate earnings after taxes for each of the alternative. Assume a tax rate of 40 percent.

10. Orbital communication has operating plants in over 100 countries. It also keeps funds for transaction purposes in many foreign countries . In 2010 it held 100,000 kronas in Norway worth $35,000. The funds drew 12 percent interest , and the krona increased 6 percent against the dollars. What was the value of the holding based on US. dollars, at year end?. Multiply $35,000 times 1.12 and then multiply the resulting value by 106 percent.

11. Sanders’ prime time company has annual credit sales of $1,800,000 and accounts receivable of $210,000. Compute the value of the average collection period.

12. if you borrow $4,000 at $500 interest for one year , what is your effective interest rate for the following payment plan?

a. annual payment b. Semiannual payment c. Quarterly payments. D. monthly payment.

13. Speedy delivery systems can buy a piece of equipment that is anticipated to provide an 8 percent return and can be financed at 5 percent with debt. Later in the year the firm turns down an opportunity to buy a new machine that would yield a 15 percent return but would cost 17 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm’s capital structure.

A. compute the weighted average cost of capital. B. which projects should be accepted?

14. Airborne airlines, Inn. Has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $75 and is currently selling for $875. Airborne is in the 30 percent tax bracket. The firm wishes to know what the after tax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as yield to maturity on old issue because the risk and maturity date will be similar.

a. compute the approximate yield to maturity and what on the old issue and use this as the yield for the new issue. B. make the appropriate tax adjustment to determine the after tax cost of debt.

15. United Business forms’ capital structure is as follows:

a. debt------ 35% b. preferred stock ------- 15 c. common equity----- 50.

After tax cost of debt is 7 percent the cost of preferred stock is 10 percent, and the cost of common equity in the form of retained earnings is 13 percent. Calculate United business forms’ weighted average cost of capital.

16. Assume a firm has earnings before depreciation and taxes of 500,000 and no depreciation, It is in a 40 percent tax bracket.

17. Assume a 200,000 investment and the following cash flows for two products:

18. You buy a new piece of equipment for $11,778 and you receive a cash inflow of 2,000 per year for 10 years. What is the internal rate of return ?

19. The Pan America Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and saving money. The net cost of this machine is $45,000. The annual cash flow have the following projection

Year cash flow

1 ---------------------------15,000

2 ---------------------------20,000

3 ---------------------------25,000

4 ---------------------------10,000

5 ---------------------------5,000

20. The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF) in June of 2009:

Spot---------------------------$0.8466

30-day forward------------$0.8504

90-day forward------------$0.8540

180-day forward-----------$0.8587

a. Was the Swiss franc selling at a discount or premium in the forward market?

b. What was the 30-day forward premium (or discount)?

c. What was the 90-day forward premium (or discount)?

d. Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?

e. Assume a Swiss bank entered a 180-day forward contract with Citicorp to buy $100,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars?

21. Suppose a Polish zloty is selling for $0.3399 and a British pound is selling for $1.448. What is the exchange rate (cross rate) of the Polish zloty to the British pound? That is, how many Polish zlotys are equal to a British pound?

22. An investor in the United States bought a one-year Singapore security valued at 150,000 Singapore dollars. The U.S. dollar equivalent was $100,000. The Singapore security earned 15 percent during the year but the Singapore dollars. The US dollar equivalent was $100,000. The Singapore dollar depreciated 5 cents against the US dollar during the same time period ($0.67/SD to $0.62/SD). After transferring the fund back to the United States , what was the investor’s return on his $100,000? Determine the total ending value of the Singapore investment in Singapore dollars and then translate this value to US dollars by multiplying by $062. Then compute the return on the $100,000.

23. you are the vice-president of finance for Exploratory resources, headquartered in Houston ,Texas. In January 2010, the firm’s Canadian subsidiary obtained a six ??"month loan of 100,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan , the spot exchange rate was US.$0.8990/Canadian dollars and the Canadian currency was selling at discount in the forward market. The June 2010 contract (face value= $100,000 per contract) was quoted at US. $0.8920/Canadian dollar.

A. explain how the Houston bank could lose on this transaction assuming no hedging.

B. if the bank does hedge with the forward contract, what is the maximum amount it can lose?

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