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Chapter 3: 13BP_b (page 250)
Digital Access Inc. needs \(400,000 in funds for a project.
b. Given your answer to part a and a stated interest rate of 9 percent on the total amount borrowed, what is the effective rate on the \)400,000 actually being used?
The effective interest rate is 11.25%.
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In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.
a. What is the economic ordering quantity?
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by \(150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket.
Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is two times.
d. What would be the total incremental investment in accounts receivable and inventory to support a \)65,000 increase in sales?
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. Do an analysis similar to that in Table 6-6.
1-year T bill at the beginning of year 1 | 6% |
1-year T bill at the beginning of year 2 | 7% |
1-year T bill at the beginning of year 3 | 9% |
1-year T bill at the beginning of year 4 | 11% |
Discuss the relative volatility of short- and long-term interest rates
Thompson Wood Products has credit sales of \(2,160,000 and accounts receivable of \)288,000. Compute the value of the average collection period.
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