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Unformatted text preview: www.telfer.uOttawa.ca Winter 2011 ADM 2350 SECTIONS M, N, & P Prof. W. Rentz FINANCIAL MANAGEMENT Assignment #4 Solutions GENERAL INSTRUCTIONS: Your assignment must be sent electronically in either doc docx , or pdf format to the TUTOR for your section . Your tutor must RECEIVE your assignment by no later than noon on Thursday, April 7, 2011 . Late assignments will NOT be accepted. To ensure that your tutor receives the assignment on time, it is STRONGLY recommended that you electronically submit your assignment before midnight on the evening of Wednesday, April 6, 2011 at the latest. Unless there are system problems with doc- depot, the professors solution set will be posted on doc-depot by no later than 6 PM of the due date. This assignment counts 5% of your course grade. You are encouraged to work on this assignment in teams of up to 5 students from the same section of this course . However, you may turn in an individual assignment if you prefer. Each assignment must be typed and contain the student name(s) and student number(s) on each page. A scanned statement of integrity must be electronically attached to each assignment (See pages 10-11 of the course syllabus). Each individual whose name appears on the assignment must sign the statement of integrity. Live Links for Tutors E-mail Addresses: Section M Yue Wan firstname.lastname@example.org Section N Sushil Dahiya email@example.com Section P Yuan Liu firstname.lastname@example.org Section Q Malcolm MacQuarrie email@example.com 1. (30 marks) The Kahl Silver Corporation (KSC) had sales of $14,600,000 last year and earned a 5 percent return, after taxes, on sales. Although its terms of purchase are thirty days, its accounts payable represent 60 days of purchases. Suppliers are threatening to cut off the firms purchases. Accordingly, the firms president is seeking to increase KSCs bank borrowings in order for KSC to become current on its trade obligations (i.e. to have 30 days of payables outstanding). KSCs balance sheet (in thousands of dollars) is Cash $100 Accounts payable $2,400 Accounts receivable 500 Note payable 500 Inventories 2,500 Accruals 500 Current assets $3,100 Current liabilities $3,400 Land & buildings 1,000 Mortgage 500 Equipment 1,000 Common shares 200 Retained earnings 1,000 Total assets $5,100 Total claims $5,100 Winter 2011 Assignment #4 Solutions ADM 2350 2 a. How much financing is needed to eliminate the past-due accounts payable? A/P = $2,400,000. The average daily payables are $2,400,000/60 = $40,000. Since we want to reduce payables by 30 days, the amount of financing needed is 30 x $40,000 = $1,200,000. 1 mark for correct current A/P of $2,400,000 1 mark for correct current 60 days of payables 1 mark for correct current average daily payables of $40,000 1 mark for 30 days as amount of reduction in days payable 1 mark for correct $1,200,000 amount of financing needed b. As a bank loan officer, would you make the loan? Explain why or why not. (Hint: It might be useful to calculate the Debt Ratio, the Current Ratio, and the ROA to...
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This note was uploaded on 01/10/2012 for the course TEFLER 2350 taught by Professor Rentz during the Winter '11 term at University of Ottawa.
- Winter '11