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FIN%204260%20Chapter%203%20HW%20Sp%2012

# FIN%204260%20Chapter%203%20HW%20Sp%2012 - c If the change...

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FIN 4260 - Short-Term Financial Management Chapter 3 – Homework – Spring 2012 PV = FV / [1 + ( k )( n / 365 )] or PV = FV / [1 + ( k / 365 )( n )] CF Cash Flow Per Period k Interest Rate Per Period PV Perp = = 1) Y OU WANT TO RENEGOTIATE LONGER CREDIT TERMS WITH ONE OF YOUR SUPPLIERS FROM NET 30 TO NET 45. L ENGTHENING DPO WOULD SHORTEN THE CASH CONVERSION PERIOD (CCP). Y OUR FIRM PURCHASES \$1.2 MILLION IN INVENTORY FROM THIS SUPPLIER EVERY FOUR MONTHS AND YOUR ANNUAL OPPORTUNITY COST OF FUNDS ( K ) IS 8%. a. Draw a time line of the two options for a single purchase. b. Calculate the value of the savings from one purchase made under the new terms? Note: Discount the \$1.2M purchase for 30 days, then 45 days, and calculate the difference.

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Unformatted text preview: c. If the change is considered permanent, what is the NPV of the new terms? Note: Remember the firm buys every four months, so the result of the calculation is a benefit realized every four months (three times a year). If the renegotiation becomes permanent and the firm intends to continue purchasing from this supplier in the same amount on the same frequency, it benefits from the perpetuity in 4-month streams and we need an appropriate periodic interest rate. d. If the change is expected to last only, say, three-years, what is the NPV of the new terms. Note: Calculate the PVA....
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FIN%204260%20Chapter%203%20HW%20Sp%2012 - c If the change...

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