Financial Management Final Exam - GFN610 F2011 Take-Home...

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GFN610 F2011 “Take-Home” Final Exam Michelle Pizarro 12/8/2011 GFN610 – Final Exam Take-Home Portion Due 12:00 AM, 12/17/2011 This is the “take-home” portion of the Final Exam for GFN610. This portion of the exam will be worth 70% of the grade for the Final Exam. You are to work the problems outlined below, place your solutions including the calculations that lead to your answer in an Excel or Word document, and upload to the link provided on Moodle under 12/17.There are 16 problems on the test that accumulate to 100 pts. A 17 th question is included for 10 pts. of extra credit. Extra credit will be considered in calculating the result for the Final Exam “take-home” portion. Final grade for the “take-home” portion of the exam may be greater than the total points earned but will NOT be less than the points earned. Extra credit cannot increase the grade beyond 100%. Please let me know of any questions and good luck. Note: For valuation problems, feel free to use either the Appendix Tables or the valuation formulas presented in class on November 19 th . Just be sure to show your work either way. 1.) [9 pts] Mountain Home Systems, Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The firm is currently debating whether to expand its sales to car- telephone manufacturers. While the firm expects an extra $3 million in sales if it enters this market, it also knows that 15% of its sales will ultimately be uncollectible. In addition, collection costs will be 3% on all new sales and the firm's production and selling costs are 80% of sales. Mountain Home's tax rate is 30%. a) Calculate Mountain Home's additional net income from the new sales. Additional Sales……………………………………. .………………$ 3,000,000 Accounts uncollectible (15% of new sales)………………………… 450,000 Annual incremental revenue ……………………………………… 2,550,000 Collection cost (3% of new sales)……………………………………… 90,000 Production and selling cost (80% of new sales)…………………….… 2,400,000 Annual Income before taxes ………………………………………. . . 60,000 Taxes (30%)……………………………………………………….…. . . 18,000 Annual incremental income after taxes……………………………. .. $ 42,000 Net Income from new sales : $ 42,000 b) If Mountain Home can turn its receivables over 4 times per year, what will its additional investment in accounts receivable be and what will the firm earn as an after-tax return on that investment? Account receivable
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Financial Management Final Exam - GFN610 F2011 Take-Home...

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