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Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler’s sales last year were $3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $1,800,000. The firm had fixed assets totaling $535,000. Strickler’s payables deferral period is 45 days. a. Calculate Strickler’s cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Strickler’s managers believe the annual inventory turnover can be raised to 9 times without affecting sales. What would Strickler’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?
A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
Precision Machinists makes two grades of gears for industrial machinery: standard and heavy duty. The process requires two steps. Step-1 takes 8 minutes for the standard gear and 10 minutes for the heavy duty. How many of each gear should be made eac..
Puckett product is planning for $5 million in capital expenditures next year. Puckett’s target capital structure consists of 60% debt and 40% equity. If net income next year is $3 million and Puckett follows a residual distribution policy with all di..
Assume that you are an intern with the Nicholas Enchilada's Inc., and you have collected the following data: The yield on the company's outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is $0.50 a share; What is the firm's W..
Compute the price of an American put option with strike K=110 and maturity T=.25 years. Do the call and put option prices of Questions 1 and 2 satisfy put-call parity? Compute the fair value of a chooser option which expires after n=10 periods. At ex..
A trader writes five naked put option contracts, with each contract being on 100 shares. The option price is $10, the time to maturity is six months, and the strike price is $64. What is the margin requirement if the stock price is $58? How would the..
Fixed stock repurchases allow managers to repurchase shares only when they feel those shares are undervalued. Since the early 1980s, it has become increasingly more difficult to do a stock repurchase due to SEC regulations. Stock repurchases send the..
Imagine there are two free agent outfielders available. They both cost the same price, but you only have the money to sign one. Assume home runs alone are a proxy for performance. Which player has the highest expected return? Which player would repre..
Erika and Kitty, who are twins, just received $35,000 each for their 26th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year f..
Warner is expected to have its growth rate drop from 15% to 5% in 5 years. The last dividend was $2 and the discount rate is based on beta of 2, T bond rate of 6% and return of the market of 11%. First, find the value of Warner. Second, compute the y..
Waldrop Corporation must install $200 of new equipment in its Ohio plant. It can obtain a bank loan for 100% of the required amount at 7% interest on the loan. Assume that Waldrop's tax rate is 35% and that the equipment's depreciation would be $100 ..
What is the major characteristic distinguishing one type of Treasury security from another?
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