Reference no: EM133119076

Questions -

Q1. Antivirus Inc. expects its sales next year to be $2,500,000. Inventory and accounts receivable will increase $480,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

Q2. Boatler Used Cadillac Co. requires $850,000 in financing over the next two years. The firm can borrow the funds for two years at 12 percent interest per year. Ms. Boatler decides to do forecasting and predicts that if she utilizes short-term financing instead, she will pay 7.75 percent interest in the first year and 13.55 percent interest in the second year. Determine the total two-year interest cost under each plan. Which plan is less costly?

Q3. City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers, so the firm's checks will take longer to clear the bank. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.

1. If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up?

2. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?

Q4. Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.60 per unit.

1. What is the economic ordering quantity?

2. How many orders will be placed during the year?

3. What will the average inventory be?

4. What is the total cost of ordering and carrying inventory?