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A firm is evaluating an accounts receivable change that would increase bad debts from 2% to 4% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 60,000 units.a. What are bad debts in dollars currently and under the proposed change?b. Calculate the cost of the marginal bad debts to the firm.c. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? Explain.d. Considering all changes in costs and benefits, would you recommend the proposed change? Explain.e. Compare and discuss your answers in parts c and d.Zero-balance account Union Company is considering establishment of a zero-balance account. The firm currently maintains an average balance of $420,000 in its disbursement account. As compensation to the bank for maintaining the zero-balance account, the firm will have to pay a monthly fee of $1,000 and maintain a $300,000 non–interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed zero-balance account, and make a recommendation to the firm, assuming that it has a 12% opportunity cost.Cost of bank loan Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity.a. How much interest (in dollars) will the firm pay on the 90-day loan?b. Find the effective 90-day rate on the loan.c. Annualize your result in part b to find the effective annual rate for this loan, assuming that it is rolled over every 90 days throughout the year under the same terms and circumstances.
Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10. Also assume the P/E ratio is about 15.8. Calculate the market capitalization for GE. (Approximately)
The preferred stock of Ultra Corporation pays an yearly dividend of $6.30. It has a required rate of return of nine percent. Calculate the price of the preferred stock.
abc electronics is considering an investment that will have cash flows of 16000 5000 and 4000 for years 1 through 3.
Suppose you are planning a project which has been assigned a discount rate of 8 percent. If you start the project today, you will incur an initial cost of $480 and will receiv cash inflows of $350 a year for three years.
Security B has an expected rate of return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?
a defined-contribution pension plan
Stocks A and B have the following historical returns, compute the average rate of return for each stock during the five year period.
What is the difference between systematic and unsystematic risk? How is the beta coefficient used to assess risk? Is it better to maximize return or minimize risk? Why?
Should the firm undertake the healthy bottled water project? As pasrt of your analysis include a sensitivity analysis for sales price, variable costs, fixed costs, and unit sales at +/- 10%, 20%, and 30% from the base case. Also perform an anaylsi..
Berkley Trucking recently purchased a new truck costing $147,800. The firm financed this purchase at 7.6 percent interest with monthly payments of $2,100. How many years will it take the firm to pay off this debt?
If you have been keeping up with the nation's finances, you know that Fannie Mae and Freddie Mac are in trouble. So are Lehman Bros. and Washington Mutual Bank.
managers of firm a are set on a path of rapid growth while managers of firm b are going to be more conservative in
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