Fundamentals of corporate finance ch. 18: short-term finance and

Fundamentals of Corporate Finance

Ch. 18: Short-Term Finance and Planning

Questions and Answers

• Ch. 18: Questions 3 & 11 (Questions and Problems      section)

3.   Changes in the Operating Cycle [LO1] Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change:

· a. Average receivables goes up.

· b. Credit repayment times for customers are increased.

· c. Inventory turnover goes from 3 times to 6 times.

· d. Payables turnover goes from 6 times to 11 times.

· e. Receivables turnover goes from 7 times to 9 times.

· f. Payments to suppliers are accelerated.

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11.   Calculating the Cash Budget [LO3] Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2015:

· The company predicts that 5 percent of its credit sales will never be collected, 35 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.

· In March 2015, credit sales were $235,000 and credit purchases were $161,300. Using this information, complete the following cash budget:

• Ch.      20: Questions 8 & 14 (Questions and Problems section)

8. Size of Accounts Receivable [LO1] The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, four days past due. If annual credit sales are $9.75 million, what is the company’s balance sheet amount in accounts receivable?

14.   Credit Policy Evaluation [LO2] The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. Based on the following information, determine if the company should proceed or not. Therequired return is 2.5 percent per period.

• Ch.      21: Questions 4 & 7 (Questions and Problems section)

4.   Yankee Bonds [LO3] Which of the following most accurately describes a Yankee bond?

· a.   A bond issued by General Motors in Japan with the interest payable in U.S. dollars.

· b.   A bond issued by General Motors in Japan with the interest payable in yen.

· c.   A bond issued by Toyota in the United States with the interest payable in yen.

· d.   A bond issued by Toyota in the United States with the interest payable in dollars.

· e.   A bond issued by Toyota worldwide with the interest payable in dollars.

7.   Multinational Corporations [LO3] Given that many multinationals based in many countries have much greater sales outside their domestic markets than within them, what is the particular relevance of their domestic currency?

• Ch.      26: Questions 1 & 2 (Questions and Problems section): Microsoft® Excel® template      provided for Problem 2

1. Calculating Synergy [LO3] Pearl, Inc., has offered $357 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $319 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?

2.   Balance Sheets for Mergers [LO2] Consider the following premerger information about Firm X and Firm Y:

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share. Assuming that neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm X assuming the use of purchase accounting.