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Liberty Bus1320 (text book assignments +discussion)

Question # 00003202
Subject: Business / Finance
Due on: 11/28/2013
Posted On: 11/06/2013 05:27 AM
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mac123
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Module/Week 1 -- Introduction to Financial Management

For the Week 1 Textbook Assignment

Please complete

Sun Microsystems

Questions 1-7

pages 90-93

COMPREHENSIVE PROBLEM 2 – FANCY DISTRIBUTING

Fancy Distributing Company of Atlanta sells fans and heaters to retail outlets throughout the Southeast. Joe Fancy, the president of the company, is thinking about changing the firm’s credit policy to attract customers away from competitors. The present policy calls for 3/15, net 30 cash discount. The new policy would call for a 5/10, net 45 cash discount. Currently, 45 percent of Fancy customers are taking the discount, and it is anticipated that this number would go up to 65 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $150,000 to $575,000 as a result of the change in the cash discount policy.

The increased sales would also affect the inventory level. The average inventory carried by Logan is based on a determination of an EOQ. Assume sales of fans and heaters increase from 10,500 to 22,750 units. The ordering cost for each order is $175, and the carrying cost per unit is $2.50 (these values will not change with the discount). The average inventory is based on EOQ/2. Each inventory has an average cost of $12.50.

Cost of goods sold is equal to 60 percent of net sales; general and administrative expenses are 15 percent of net sales; and interest payments of 14 percent will only be necessary for the increase in the accounts receivable and inventory balances. Taxes will be 34 percent of before-tax income.

a. Compute the accounts receivable balance before and after the change in the cash discount policy. Use the net sales (total sales minus cash discounts) to determine the average daily sales.

b. Determine the EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy.

c. Compute the following income statement.

d. Should the new cash discount policy be utilized? Briefly comment.


COMPREHENSIVE PROBLEM 3 – GENERAL WEAPONS, INC.

General Weapons, Inc. (Comprehensive time value of money)Mr. Rambo, President of General Weapons, Inc., was pleased to hear that he had three offers from major defense companies for his latest missile firing automatic ejector. He will use a discount rate of 10 percent to evaluate each offer.

Offer I

$1,600,000 now plus $825,000 from the end of years 6 through 15. Also if the product goes over $60 million in cumulative sales by the end of year 15, he will receive an additional $3,000,000. Rambo thought there was an 80 percent probability this would happen.

Offer II

Thirty percent of the buyer’s gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 70 percent. Sales for year 1 are projected to be $3.75 million and then grow by 35 percent per year. This amount is paid today and is not discounted.

Offer III

A trust fund would be set up for the next four years. At the end of that period, Rambo would receive the proceeds (and discount them back to the present at
10 percent). The trust fund called for semiannual payments for the next four years of $150,000 (a total of $300,000 per year). The payments would start immediately. Since the payments are coming at the beginning of each period instead of the end, this is an annuity due. To look up the future value of the annuity due in the tables, add 1 to n, where n is the number of periods, and subtract 1 from the value in the table. Assume the annual interest rate on this annuity is 10 percent annually (5 percent semiannually). Determine the present value of the trust fund’s final value.

Required: Find the present value of each of the three offers and then indicate which one has the highest present value.

Module 6

Group Discussion Board forum

By Module/Week 6, students will be assigned to a group in the Group Discussion Board. A minimum 1,000-word essay will be worked on as a group, and then posted to the Discussion Board for everyone to see. Replies are not necessary; however, they are strongly encouraged. Students are to briefly describe how the Bible is related to the topics covered in the course. An integration of the Bible must be explicitly shown, in relation to a course topic, in order to receive points. In addition, at least two other outside scholarly sources (the text may count as one) should be used to substantiate the group’s position. This assignment must be submitted to SafeAssign, as well as the Discussion Board by one of the group members. Individual projects are not allowed. Social loafing is not acceptable, and will result in a student earning a grade of 0

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