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The Reynolds Corporation buys from its suppliers on terms of 3/13, net 45. Reynolds has not been utilizing the discounts offered and has been taking 45 days to pay its bills. Mr. Duke, Reynolds Corporation vice president has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of 17 percent. The bank requires a 26 percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement.
A) Calculate the cost of not taking a cash discount. (Use a 360-day year)
B) Calculate the effective rate of interest if the company borrows from the bank.
Sarah wants to go buy a house in Hawaii 15 years from now. She estimates she'll need $400,000 at that time to make this purchase. She plans to save each month at the end of the month for the next 15 years, and invest it at a rate of 8% a year, compou..
Fijisawa, Inc., is considering a major expansion of its product line and has estimated the following free cash flows associated with such an expansion. Calculate the net present value. Calculate the profitability index. Calculate the internal rate of..
Starting with your current situation, what must you do to ensure an annual retirement income of $75,000 starting at age 65? Make sure that you submit time value of money calculations that support the conclusions
Calculate a table of interest rates based on the following information:
Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6.7%. What is the duration if the yield to maturity is 10.7%?
Dewey Cheetham and Howe Accounting firm is considering the purchase of $1,000 New Haven Muncipal Bond. The stated coupon rate is 5%, paid quarterly. The bond will matuure in 22 years. The YTM for similar bonds is 4%. What should be the market price b..
Assume that a new project will annually generate revenues of $2,300,000 and cash expenses (including both fixed and variable costs) of $700,000, while increasing depreciation by 170,000 per year. In addition the firm’s tax rate is 33%. Calculate the ..
Killer Whale, Inc. has the following balance sheet statement items: total current liabilities of $885,517; net fixed and other assets of $1,698,610; total assets of $2,852,030; and long-term debt of $655,703. What is the amount of the firm’s current ..
If Boyd Corp. has sales of $2 million per year (all credit) and a collection period of 35 days, what is its average amount of accounts receivable outstanding?
The company has offered you a $5,000 bonus, which you may receive today, or 100 shares of the company’s stock, which has a current stock price of $50 per share. Mathematically, what is the best choice? Why?
Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. Assume that Able undergoes a 1-for-2 reverse stock split. What is the divisor?
Define the importance of time value of money including compounding (future value), discounting (present value) and annuities. Why do organization leaders need to understand these concepts?
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