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BUS 330a: Corporate Finance I Fall 2012, American University in Bulgaria Pro !

"iroslav "ateev

#$"%&$'( )* Pro+lem 1, C-apter 1* Calculate the nominal annual cost of non-free trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. a. 1/15, net 20 b. 2/10, net 0 c. !/10, net "5 d. 2/10, net "5 e. 2/15, net "0 Pro+lem 2, C-apter 13 #o$ier Corporation is a fast-growing supplier of office products. Analysts pro%ect the following free cash flows &'C's( during the ne)t ! years, after which 'C' is e)pected to grow at a constant *+ rate. #o$ier,s weighted a-erage cost of capital is .ACC / 1!+. 'ree cash flow &0 millions( 1ear 1 -020 1ear 2 0!0 1ear ! 0"0

a. .hat is #o$ier,s terminal, or hori$on, -alue2 &3int4 'ind the -alue of all free cash flows beyond 1ear ! discounted bac5 to 1ear !.( b. .hat is the current -alue of operations for #o$ier2 c. 6uppose #o$ier has 010 million in mar5etable securities, 0100 million in debt, and 10 million shares of stoc5. .hat is the intrinsic price per share2 Pro+lem 3, C-apter 13 A company has capital of 0200 million. 7t has an 89:7C is ;+, forecasted constant growth of 5+ and a .ACC of 10+. .hat is the -alue of operations2 .hat is its intrinsic <=A2 Pro+lem ., C-apter 1* >ohnson Co. sells on terms !/10, net !0. ?otal sales for the year are 0;12,500. 'orty percent of customers pay on the 10th day and ta5e discounts@ the other si)ty percent pay, on a-erage, "0 days after their purchase. a. .hat is the days sale outstanding2 b. .hat is the a-erage amount of recei-ables2

c. .hat would happen to a-erage recei-ables if >ohnson Co. toughened its collection policy with the result that all nondiscount customers paid on the !0th day2 Pro+lem / , C-apter 1* ?he Aocco Corporation has an in-entory con-ersion period of 0 days, an a-erage collection period of !B days, and a payables deferral period of !0 days. Assume that cost of goods sold is *5+ of sales. a. .hat is the length of the firm,s cash con-ersion cycle2 b. 7f Aocco,s annual sales are 0!,"21,B*5 and all sales are on credit, what is the firm,s in-estment in accounts recei-able2 c. 3ow many times per year does Aocco turn o-er its in-entory2 Pro+lem * , C-apter 1* #orothy Coehl recently leased space in the 6outhside <all and opened a new business, Coehl,s #oll 6hop. Dusiness has been good, but Coehl has freEuently run out of cash. ?his has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Coehl plans to borrow from the ban5 to ha-e cash ready as needed, but first she needs a forecast of %ust how much she should borrow. Accordingly, she has as5ed you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. 6ales are made on a cash basis only. Coehl,s purchases must be paid for during the following month. Coehl pays herself a salary of 0",B00 per month, and the rent is 02,000 per month. 7n addition, she must ma5e a ta) payment of 012,000 in #ecember. ?he current cash on hand &on #ecember 1( is 0"00, but Coehl has agreed to maintain an a-erage ban5 balance of 0 ,000Fthis is her target cash balance. &#isregard cash in the till, which is insignificant because Coehl 5eeps only a small amount on hand in order to lessen the chances of robbery.( ?he estimated sales and purchases for #ecember, >anuary, and 'ebruary are shown below. Gurchases during Ho-ember amounted to 01"0,000. #ecember >anuary 'ebruary Sales 01 0,000 "0,000 0,000 Purc-ases 0"0,000 "0,000 "0,000

a. Grepare a cash budget for #ecember, >anuary, and 'ebruary. b. How suppose that Coehl starts selling on a credit basis on #ecember 1, gi-ing customers !0 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. .hat would the company,s loan reEuirements be at the end of #ecember in this case2 &3int4 ?he calculations reEuired to answer this Euestion are minimal.(