Purpose of Assignment
Students should understand the operating and cash cycles of a company, the mechanics in preparing a cash budget, the use of exchange rates and interest rate parity in international finance and valuation of a company in a merger and acquisition.
Resources: Tutorial help on Excel® can be found on the Microsoft® Office website. There are also additional tutorials via the web that offer support for office products.
Complete the following Questions and Problems from each chapter as indicated. See “Instructor Policies” for discussion of various ways to create and then submit your response.
Show all work and analysis on your submission.
- Ch. 18: Questions 3 & 11 (Questions and Problems section)
- Ch. 21: Questions 1 (Questions and Problems section)
- Ch. 26: Questions 7
Click the Assignment Files tab to submit your assignment.
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.
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:
1. Using Exchange Rates [LO1] Take a look back at Figure 21.1 to answer the following questions:
a. If you have $100, how many euros can you get?
b. How much is one euro worth?
c. If you have 5 million euros, how many dollars do you have?
d. Which is worth more, a New Zealand dollar or a Singapore dollar?
Page 736e. Which is worth more, a Mexican peso or a Chilean peso?
f. How many Mexican pesos can you get for a euro? What do you call this rate?
g. Per unit, what is the most valuable currency of those listed? The least valuable?
7. EPS, PE, and Mergers [LO3] The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here:
Jolie’s shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.
a. What will the EPS of Pitt be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?
b. What must Pitt feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover.