HW_4_Solutions_Chapters_20_21[1]

# HW_4_Solutions_Chapters_20_21[1] - Homework 4 Solutions...

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Homework 4 Solutions Homework Solutions Chapter 20 1.Starpucks has improved its liquidity over the year and is now comparable to the industry, therefore the liquidity situation looks good. However, the number of days in inventory has increased since last year which is a bad sign. In addition, Starpucks is performing worse than the industry. Therefore, their inventory situation is not good. 2. Number of days of inventory = \$2,000/(\$30,000/365)=24.33 days 3. Number of days of receivables = \$3,000/(\$40,000/365)=27.375 days 4. Operating cycle = 24.33+27.375=51.71 5. Select the lowest one. a. Line cost = *12 = 7% b. BA cost = *12=6.79% c. CP cost = *12= 6.56% 6. Z score = 3.3*.20+1*2+.6*3.4+1.4*.5+1.2*.5= 6 6 is greater than 2.7 so this company has great credit. 7. a. The discount is: 1% of \$1,000 = \$10 b. The customer gains an extra 40 days of credit. c. With the discount, the customer pays \$990. Without the discount, the customer pays \$1,000. The difference is: \$10/\$990 = 1.01% A rate of 1.01% per 40 days of extra credit is equivalent to an annual rate of: (1.0101) 365/40 – 1 = 0.0960 = 9.60%

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Homework Solutions Chapter 21 1. The market value of target is 35,000*40=1,400,000 The acquirer must issue 1,400,000/75=18,667 shares 2. The earnings are 100,000+400,000=500,000 3. The EPS is 500,000/18,667= \$26.8 4. The cost of the acquisition is .80*1,000,000=800,000*30=24,000,000 Before merger Premier was valued at 20*1,000,000=20,000,000. The control premium is the cost – market value before acquisition:
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## This note was uploaded on 09/06/2011 for the course FIN 351 taught by Professor Li during the Spring '09 term at S.F. State.

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HW_4_Solutions_Chapters_20_21[1] - Homework 4 Solutions...

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