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Chapter 3: 18BP_b (page 251)
If you borrow \(5,300 at \)400 interest for one year, what is your effective interest rate for the following payment plans?
b. Semi-annual payments.
The effective interest rate is 10.06%.
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Oral Roberts Dental Supplies has annual sales of \(5,200,000. Ninety percent are on credit. The firm has \)559,000 in accounts receivable. Compute the value of the average collection period.
Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40 percent.
c. What would happen if the short- and long-term rates were reversed?
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.
a. What is the economic ordering quantity?
Esquire Products Inc. expects the following monthly sales:
January | \(28,000 |
February | \)19,000 |
March | \(12,000 |
April | \)14,000 |
May | \(8,000 |
June | \)6,000 |
July | \(22,000 |
August | \)26,000 |
September | \(29,000 |
October | \)34,000 |
November | \(42,000 |
December | \)24,000 |
Total annual sales | \(264,000 |
Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.
b. Determine a cash receipts schedule for January through December. Assume that dollar sales in the prior December were \)20,000. Work part b using dollars.
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% |
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