Description
Complete the following problems from Chapters 13-16 in Principles of Managerial Finance: Long-Term and Short-Term Financial Decisions: P13-7; P13-12; P14-9; P15-3; P15-5; P16-20
Use the Chapters 13-16 Excel resource (if needed) to complete the problem-set assignment in this topic.
Chapter 13 Leverage and Capital Structure
Calculation of Share Value
Estimates Associated with
Alternative capital Structures
Capital Structure
Debt Ratio
0
10
20
30
40
50
60
Expected
EPS
1.75
1.9
2.25
2.55
3.18
3.06
3.1
Estimated
Required Return
0.114
0.118
0.125
0.1325
0.18
0.19
0.25
Estimated
Share Value
=B10/C10
=B11/C11
=B12/C12
=B13/C13
=B14/C14
=B15/C15
=B16/C16
Rock-O Corporation
Stockholders’ Equity Section
Before the Reverse Stock Split
Common stock
Paid-in-Capital
Retained Earnings
Total Stockholders’ Equity
900,000 shares $ 1.00 par $
900,000
7,000,000
3,500,000
$ 11,400,000
Reverse Stock Split
Stock Split
23
Common stock
600,000 shares $ 1.50 par $
900,000
Paid-in-Capital
7,000,000
Retained Earnings
3,500,000
Total Stockholders’ Equity
$ 11,400,000
Analysis of Initiating a Cash Discount
for Eboy Corporation
Increase in units due to discount
Selling price @net 30
Variable Cost Per Unit
Additional Profit
Contribution from
Sales:
Cost of Marginal
Investment in
Accounts
Receivable
Variable cost per unit
Raw Material annual usage
Accounts Receivable
Sales
Days
Collection Period
AR Turnover
$
2,600
1450
$ 443,000
$ 3,544,000
365
45.625
8.0
Average investment presently (w/o discounts)
$
471,250
Variable cost per unit
Raw Material annual usage
Expected AR Turnover due to discount
$
2,600.00
1500
12.0
Average investment presently (with cash discounts)
$
325,000
Reduction in accounts receivable investment
$
146,250
Opportunity cost of funds
Cost Savings from reduced investment in AR
Cash Discount term
Percentage of customers to take discount
Raw Material annual usage (new)
Selling price per unit
Cost of Cash Discount
Net Profit from initiation of proposed cash discount
12.5%
2.00%
70%
1500
$ 4,200
$
$
50
4,200
2,600
$
80,000
$
18,281
$
88,200
$
10,081
Chapter 16 Current Liabilities Management
Fixed Rate Loan
Given Data:
Days
Loan
Prime Rate
Maturity
Prime Excess
365
$ 200,000.00
7.00%
60 days
2.00%
a. The total dollar interest cost on the First American Loan
Loan
Prime+
Maturity Total Dollar Interest
$ 200,000.00
9.00% 0.164 $ 2,958.90
b. The 60-day rate on the loan
Total Dollar Interest Loan
$
2,958.90 $ 200,000.00
c. Effective annual rate of interest on fixed 60-day loan
60-day Rate
Periods in Year
1.4795% 6.083333333
Floating Rate Loan
Given Data:
Days
Loan
Prime Rate
Maturity
Prime Excess
365
$ 200,000.00
7.00%
60
1.50%
60-day Rate
1.4795%
Effective Annual Rate
9.3453%
7.50%
30
d. The Initial Rate
Prime Rate
7.00%
Prime Excess
1.50%
e. Interest Rate for first and last 30-day periods
Intial Rate +
Maturity
8.50%
0.082191781
initial rate +
9.00%
Maturity
0.082191781
Initial Rate-1st 30 day rate
8.50%
First 30 Day Rate
0.6986%
Last 30 day rate
0.7397%
f. Total Dollar Interest Cost
Loan
1st 30 Days Last 30-Days
Total Interest Cost
$ 200,000.00
0.6986% ##### $ 2,876.71
g. 60-Day rate of Interest
Total Interest Cost
Loan
$
2,876.71 $ 200,000.00
h. Effective Annual Interest Rate on 60-Day Loan
60-Day Rate
Periods in Year
1.4384%
6.083333333
60-Day Rate
1.4384%
Effective Annual Rate
9.0762%
Purchase answer to see full
attachment
Calculation of Share Value
Estimates Associated with
Alternative capital Structures
Capital Structure
Debt Ratio
0
10
20
30
40
50
60
Expected
EPS
1.75
1.9
2.25
2.55
3.18
3.06
3.1
Estimated
Required Return
0.114
0.118
0.125
0.1325
0.18
0.19
0.25
Estimated
Share Value
=B10/C10
=B11/C11
=B12/C12
=B13/C13
=B14/C14
=B15/C15
=B16/C16
Rock-O Corporation
Stockholders’ Equity Section
Before the Reverse Stock Split
Common stock
Paid-in-Capital
Retained Earnings
Total Stockholders’ Equity
900,000 shares $ 1.00 par $
900,000
7,000,000
3,500,000
$ 11,400,000
Reverse Stock Split
Stock Split
23
Common stock
600,000 shares $ 1.50 par $
900,000
Paid-in-Capital
7,000,000
Retained Earnings
3,500,000
Total Stockholders’ Equity
$ 11,400,000
Analysis of Initiating a Cash Discount
for Eboy Corporation
Increase in units due to discount
Selling price @net 30
Variable Cost Per Unit
Additional Profit
Contribution from
Sales:
Cost of Marginal
Investment in
Accounts
Receivable
Variable cost per unit
Raw Material annual usage
Accounts Receivable
Sales
Days
Collection Period
AR Turnover
$
2,600
1450
$ 443,000
$ 3,544,000
365
45.625
8.0
Average investment presently (w/o discounts)
$
471,250
Variable cost per unit
Raw Material annual usage
Expected AR Turnover due to discount
$
2,600.00
1500
12.0
Average investment presently (with cash discounts)
$
325,000
Reduction in accounts receivable investment
$
146,250
Opportunity cost of funds
Cost Savings from reduced investment in AR
Cash Discount term
Percentage of customers to take discount
Raw Material annual usage (new)
Selling price per unit
Cost of Cash Discount
Net Profit from initiation of proposed cash discount
12.5%
2.00%
70%
1500
$ 4,200
$
$
50
4,200
2,600
$
80,000
$
18,281
$
88,200
$
10,081
Chapter 16 Current Liabilities Management
Fixed Rate Loan
Given Data:
Days
Loan
Prime Rate
Maturity
Prime Excess
365
$ 200,000.00
7.00%
60 days
2.00%
a. The total dollar interest cost on the First American Loan
Loan
Prime+
Maturity Total Dollar Interest
$ 200,000.00
9.00% 0.164 $ 2,958.90
b. The 60-day rate on the loan
Total Dollar Interest Loan
$
2,958.90 $ 200,000.00
c. Effective annual rate of interest on fixed 60-day loan
60-day Rate
Periods in Year
1.4795% 6.083333333
Floating Rate Loan
Given Data:
Days
Loan
Prime Rate
Maturity
Prime Excess
365
$ 200,000.00
7.00%
60
1.50%
60-day Rate
1.4795%
Effective Annual Rate
9.3453%
7.50%
30
d. The Initial Rate
Prime Rate
7.00%
Prime Excess
1.50%
e. Interest Rate for first and last 30-day periods
Intial Rate +
Maturity
8.50%
0.082191781
initial rate +
9.00%
Maturity
0.082191781
Initial Rate-1st 30 day rate
8.50%
First 30 Day Rate
0.6986%
Last 30 day rate
0.7397%
f. Total Dollar Interest Cost
Loan
1st 30 Days Last 30-Days
Total Interest Cost
$ 200,000.00
0.6986% ##### $ 2,876.71
g. 60-Day rate of Interest
Total Interest Cost
Loan
$
2,876.71 $ 200,000.00
h. Effective Annual Interest Rate on 60-Day Loan
60-Day Rate
Periods in Year
1.4384%
6.083333333
60-Day Rate
1.4384%
Effective Annual Rate
9.0762%
Purchase answer to see full
attachment
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