a.What is the cash flow on May 1, 2014 ? b.What is the cash flow on April 1,2014
ID: 1095317 • Letter: A
Question
a.What is the cash flow on May 1, 2014 ?
b.What is the cash flow on April 1,2014 ?
c. What is the net income from this transaction on April 1, 2014 ?
(d)How much has the accounts receiveable changed by on April 1,2014?
(e) On April 1, 2014 will both sides of the balance sheet increase, stay the same or decrease as a result of this transaction alone ?
(f) On May 2, 2014 the company uses the cash from the transaction to pay down debt. Will both sides of the balance sheet increase, decrease or stay the same ?
2 What are the ways a company can raise cash for an investment ?
Circle all the apply.
A.Retain more earnings
B.Issue more bonds
C.Increase accounts receivable
D.Decrease inventory
E. Increase accounts payable
F Spend more capital on growth project
3 You own a business that produces red ball bearings. It makes the red ball bearings by buying silver ball bearings and painting them red. You purchase silver ball bearings as follows:
Number of Price per
ball bearings ball bearing
January 1300 $1
February 1200 $0.75
If you are using LIFO accounting, what is the COGS if you produce1000 red ball bearings ?
With LIFO accounting what is the value of the remaining inventory ?
Using FIFO accounting, what is the value of the remaining inventory if you produced 1000 ball bearings?
4 You start up a new business and your minimum expected return on capital is 10%. You expect after tax cash flows of $50,000 one year from now and $65,000 two years from now. In years 3 and beyond (forever) you expect $70,000/yr. How much can you afford to invest and get the 10% return you expect ?
5 If you invest $67,000 and you expect after tax cash flows of $50,000 one year from now and $45,000 two years from now, what is the NPV ?
6 If instead of a $67,000 investment in Problem 5 above, you invested $40,000 what is the IRR ?
7When comparing two alternatives, is a shorter payback period always better than a longer payback period ?
8 Which is better for cash flow for inventory as measured in days if all else is equal ?
(A)30 days (B) 60 days (C) It doesn
Explanation / Answer
1)
a) 0
b) 30000
c)
30000
d)
30000
e)
stay same
f)
increase
2)
A.Retain more earnings
B.Issue more bonds
D.Decrease inventory
F Spend more capital on growth project
3)
COGS = 1000 * 0.75 = 750
remaining inventory = 200 * 0.75 + 1300 * 1 = 1450
using FIFO
ramining inventory = 300 *1 + 1200 * 0.75 = 1200
4)
at year 3
PV of perptuity = 70000/0.1 = 700000
NPV = 50000/1.1 + 65000/1.1^2 + 700000/1.1^3
= 625093.91
5)
NPV = -67000 + 50000 + 45000 = 28000
6)
0 =-40000 + 50000/(1+IRR) + 45000/(1+IRR)^2
IRR = 85.61%
7)
shorter payback period
8)
C) it doesnt matter
9)
payback period = 100000/10000 = 10 years
10)
Yes
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