Reference no: EM131185148
The sales forecast for your firm for 2014 is $9.1 million. The cost of processing (production) is 50% of sales. Sales and administrative expenses are $100,000 per month. A close look at the sales forecast shows a strong seasonal pattern. The strongest sales months are February, March, April, and May. January $600,000 July $80,000 February $1,000,000 August $70,000 March $2,000,000 September $60,000 April $3,000,000 October $60,000 May $2,000,000 November $60,000 June $100,000 December $70,000 Sales are 50% cash sales and 50% credit sales; 80% of the monthly credit sales is received as cash one month following the month of sale. The remaining 20% of credit sales is received as cash the second month following the month of sale. As a result of computer processing equipment operating lease obligations, the firm’s processing costs are uniform throughout the year (annual processing costs are uniformly spread over twelve months). The firm’s cash management policy requires the firm to maintain a minimum cash balance of $200,000. The firm’s board of directors decided that in November 2014 it would pay-out a dividend of $ 500,000. Taxes of $ 200,000 will be paid per quarter (in March, June, September, and December). A capital outlay of $750,000 will be made in both March and April. You have had a running discussion with the Chief Financial Officer (CFO) as to the best way meet anticipated monthly cash shortfalls. The CFO believes in conservative cash management it opts for long-term financing. This entails financing the firm’s cash requirements with an annual long-term loan at 10%, which is based on covering the highest monthly cash shortfall. The unused portion of acquired funds will be fully invested on a monthly basis at a 6% (annual) interest rate. You believe a more cost effective approach would be to finance the firm’s cash requirements through a revolving credit agreement at a cost of .5% (annual rate) of the monthly-unused portion of the credit line. The used portion of the credit line will cost 5% (annual rate). Determine who is right
Outstanding long-term debt
: Volbeat Corp. shows the following information on its 2015 income statement: sales = $244,000; costs = $144,000; other expenses = $7,900; depreciation expense = $18,000; interest expense = $13,200; taxes = $21,315; dividends = $10,000. In addition, yo..
|
Made valuation analyst
: You have just been made a valuation analyst. Before you get training (what else is new!), your boss asks you to value a number of items: 1) a publicly-traded company; 2) a family business; 3) a shopping center; 4) an oil refinery; 5) a patent or trad..
|
How would you define money illusion
: How would you define, “money illusion?” Do you believe regardless of which theory is applicable, interest rates will continue to vary based on a person’s credit, amount of fixed debt, and debt-to-income ratio? Please explain. In our economy today do ..
|
Firms cash requirements through revolving credit agreement
: The sales forecast for your firm for 2014 is $9.1 million. The cost of processing (production) is 50% of sales. Sales and administrative expenses are $100,000 per month. A close look at the sales forecast shows a strong seasonal pattern. You believe ..
|
Explain how the spot and forward rates of the pound
: Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 9 percent. What would be their yield? Explain how the spot and forward rates of the pound would change as covered interest arbitrage occurs.
|
What is aftertax salvage value of asset
: An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,170,000 and will be sold for $1,370,000 at the end of the project. If the tax rate is 30 percent, what is the aftertax s..
|
What is the effective annual interest rate charged
: Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. What is the effective annual interest rate charged on such a loan assuming loan repayment..
|
What was the firms cash flow to creditors
: The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,450,000, and the December 31, 2014, balance sheet showed long-term debt of $1,680,000. The 2014 income statement showed an interest expense of $99,000. What was the fir..
|