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Chapter 3: 18BP_a (page 251)
If you borrow \(5,300 at \)400 interest for one year, what is your effective interest rate for the following payment plans?
a. Annual payment.
The effective interest rate is 7.55%.
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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.
d. What is the total cost of ordering and carrying inventory?
In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?
Lear Inc. has \(840,000 in current assets, \)370,000 of which are considered permanent current assets. In addition, the firm has \(640,000 invested in fixed assets.
a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear鈥檚 earnings before interest and taxes are \)240,000. Determine Lear鈥檚 earnings after taxes under this financing plan. The tax rate is 30 percent.
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.
c. What will the average inventory be?
Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.
b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?
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