Solutions to Lab Problems for Chapter 24

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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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