Reference no: EM13170141
1. What is business risk, and how is it measured?
2. What is financial risk, and how is it measured?
3. What is operating leverage?
4. What is a cash budget, how is it calculated, and how might it be used when a firm is negotiating a loan from a bank?
5. If a firm goes from zero debt to successively higher levels of debt, why would you expect its stock price to rise first, then hit a peak, and then begin to decline?
6. Explain the residual dividend policy.
7. Define inventory conversion period, average collection period, and payables deferral period. Explain how these are used to form a cash conversion cycle.
8. Explain the additional funds needed equation. How would the following items affect the AFN: a) the dividend payout ratio, b) the profit margin, c) the capital intensity ratio, d) suppliers allowing 60 instead of 30 to pay?
9. Longstreet Inc. has fixed operating costs of $470,000, variable costs of $2.80 per unit produced, and its product sells for $4.00 per unit. What is the company's break-even point, i.e., at what unit sales volume would income equal costs?
10. Portland Plastics Inc. has the following data. If it follows the residual dividend model, what is its forecasted dividend payout ratio?
Capital budget $12,500
% Debt 40%
Net income (NI) $11,500
11. Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?
12. Your firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?
13. A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
14. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?
Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $160,000
Average accounts payable =$25,000
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