Setion A
Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling and grammar. Sources must be cited in APA format. Your response should be four (4) double-spaced pages; refer to the "Assignment Format" page located on the Course Home page for specific format requirements.
Part A
1. a. Describe an incremental cash flow for a project.
b. Describe three (3) concepts we need to examine to help understand how to estimate the incremental cash flow of a project.
2. Benson Co. purchases an asset for $6,000. This asset qualifies as a seven-year recovery asset under MACRS. Benson has a tax rate of 30%. The seven-year expense percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. If the asset is sold at the end of six years for $2,000, what is the cash flow from disposal? Show your work.
Part B
1. Briefly describe JIT inventory management.
2. Describe one (1) type of cost that is minimized with JIT control.
3. In order to use JIT, is it better to have high ordering costs or low? Provide one (1) supporting fact to justify your answer.
Part C
You are CEO of Acme, Inc. located in the United States. You use the discounted payback period method and accept all projects that payback in three years. You are considering a project that will cost $5,500,000 and will produce one cash flow that occurs in three years. However, the cash flow is in pesos since the project is an overseas project. The current indirect exchange rate is 13.5 pesos per dollar. The cash inflow in pesos is 100,000,000 in three years, and the discount rate is 11.5%. During this time, the anticipated annual inflation rate is 5% in the United States and 4% in Mexico.
Should you accept this project, using the discounted payback period method? Is this a good decision? Provide the six (6) steps you would utilize to determine whether or not this is a good decision.
Section B
Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling and grammar. Sources must be cited in APA format. Your response should be four (4) double-spaced pages; refer to the "Assignment Format" page located on the Course Home page for specific format requirements.
Part A
Consider the information below from a firm's balance sheet for 2011 and 2012.
Current Assets 2012 2011 Change
Cash and Equivalents $1,561 $1,800 -$ 239
Short-Term Investments $1,052 $3,010 -$1,958
Accounts Receivable $3,616 $3,129 $ 487
Inventories $1,816 $1,543 $ 273
Other Current Assets $ 707 $ 601 $ 106
Total Current Assets $8,752 $10,083 -$1,331
Current Liabilities
Accounts Payable $5,173 $5,111 $ 62
Short-Term Debt $ 288 $ 277 $ 11
Other Current Liabilities $1,401 $1,098 $ 303
Total Current Liabilities $6,862 $6,486 $ 376
1. What is the Net Working Capital for 2012?
2. What is it for 2011?
3. What is the Change in Net Working Capital (NWC)?
4. Assuming the Operating Cash Flows (OCF) are $7,155 and the Net Capital Spending (NCS) is $2,372, what is the Cash Flow from Assets?
Part B
Assume that you are 23 years old and that you place $3,000 year-end deposits each year into a stock index fund that earns an average of 9.5% per year for the next 17 years.
1. How much money will be in the account at the end of 17 years?
2. How much money will you have in the account 15 years later at age 55 if the account continues to earn 9.5% per year but you discontinued making new contributions?
3. How much money would you have at the end of 17 years if you had made the same number of deposits but at the beginning of the year instead of at the end of the year?
4. How much money will you have in the account 15 years later at age 55 if the account continues to earn 9.5% per year but you discontinued making new contributions?
Part C
1. a. What is the possible range for a correlation coefficient?
b. For purposes of diversification, what type of correlation coefficient among asset returns is preferred by investors? Provide a brief explanation.
2. a. Describe the two (2) investment rules identified in the text.
Explain the validity of the following statement and provide one (1) supporting fact to justify your reasoning. "Investors do not like risk and will always choose the investment with the least risk."