1. Pointy Fork Inc. expects sales next year to be $350,000 if the economy is strong, $250,000, if the economy is steady, and $150,000 if the economy is weak. The company believes there is a 25 percent probability the economy will be strong, a 50 percent probability of a steady economy, and a 25 percent probability of a weak economy. What is the expected level of sales for the next year?
2. Victor Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Victor anticipates sales of 40,000 units per year, an ordering cost of $100 per order, and carrying costs of $2 per unit.
a. What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory be?
d. What is the total cost of ordering and carrying inventory?
3. Sales for Burkhart Components would increase by $300,000 if credit is extended to some customers previously considered poor risks. Eight percent of the new accounts receivable generated will prove to be uncollectible. Additional collection costs will be 4% of sales, and production and selling costs will be 78% of sales. The firm is in the 40% tax bracket.
a. Compute the incremental income after taxes.
b. What will Burkhart's incremental return on sales be if these new credit customers are accepted?
c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will be Burkhart's incremental return on investment?
4. You invest a single amount of $20,000 for 5 years at 10%. At the end of 5 years you take all of the proceeds (initial investment plus earned interest) and invest them for 8 years at 12%. How much will you have after 13 years?
5. If you invest $14,000 today, how much will you have:
a. In 3 years at 5 percent?
b. In 15 years at 10 percent?
c. In 20 years at 12 percent?
d. In 20 years at 12 percent (compounded semiannually?)