Assignment
1. Collins Systems, Inc., is trying to develop an asset-financing plan. The firm has $300,000 in temporary current assets and $200,000 in permanent current assets. Collins also has $400,000 in fixed assets.
a.) Construct two alternative financing plans for the firm. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 30 percent of assets financed by long-term sources and the remaining assets financed by short-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan.
b.) Given that Collins's earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives. Assume a tax rate of 40 percent.
2. Sanders' Prime Time Company has annual credit sales of $1,800,000 and accounts receivable of $210,000. Compute the value of the average collection period.
3. Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.20 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?
4. If you borrow $4,000 at $500 interest for one year, what is your effective interest rate for the following payment plans?
a.) Annual payment
b.) Semiannual payments
c.) Quarterly payments
d.) Monthly payments.