Solutions to Lab Problems for Chapter 24

Solutions to Lab Problems for Chapter 24 - Solutions to...

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Unformatted text preview: Solutions to Lab Problems for Chapter 24 24. Section: 24.4 Short ­Term Financing Considerations Learning Objective: 24.4 Level of difficulty: Medium Solution: Loan amount = 900,000×90% = $810,000 Commission = 0.005×900,000 = $4,500 Interest = 810,000×0.08×(60/365) = $10,652.05 Net cost = 4,500 + 10,652.05 – 10,000 = $5,152.05 The effective annual cost = 29. Section: 24.2 Accounts Receivable Learning Objective: 24.2 Level of difficulty: Difficult Solution: CF0 = 30 days × sales per day = 30 × [($50 + 2) × (10,000 + 1,000) /365 days] = 30 days × $1,567.12 /day = $47,013.70 Future CFs = (1,000) × ($52 – $25) + (10,000) × ($2) – ($3,000) = $27,000 + $20,000 – $3,000 = $44,000 k = 5% (1 – 0.20) = 4% PV (Future CFs) = [$44,000 × (1 – 0.20)] / 0.04 = $880,000 NPV = PV (Future CFs) – CF0 = $880,000 – $ 47,013.70 = +$832,986.30 Since the NPV of the cash flow is positive, the firm should begin extending credit under the terms described above. 30. Section: 24.2 Accounts Receivable Learning Objective: 24.2 Level of difficulty: Difficult Solution: The new average collection period (ACP) = [0.80 × 10 days + 0.20 × 30 days] = 14 days The old ACP = 30 days Change in receivables = (14 – 30) × [($52 × 11,000 units) /365 days] = ( ­16 days) × ($1,567.12 /day) = –$25,073.97 PV(Future CFs) = (0.80 × 11,000) × (0.03 × $52 per unit) × (1 – 0.20) / [0.05 (1 – 0.2)] 1 = (8,800) × ($1.56) × (0.80)/0.04 = $10,982.40 / 0.04 = $274,560 NPV = PV(Future CFs) – CF0 =  ­$274,560 + $25,073.97 =  ­$249,486.03 Since the NPV of the cash flow is negative, the firm should not offer the discount under consideration. 36. Section: 24.4 Short ­Term Financing Considerations Learning Objective: 24.4 Level of difficulty: Difficult Solution: The 180 ­day bankers’ acceptance has a higher effective annual cost. 2 ...
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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.

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