I need the expert that did 8112. He has been working with me with completing these corporate finance assignments. He or she knows all work has to be written out and knows that need formulas added in the answers to where when you click on the answers that you see the formula that was used. I am attaching the homework that he or she completed for an example of how the work is completed for each problem that is in each different tab.
P15-1 P15–1 Cash conversion cycle American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. a. Calculate the firm’s operating cycle.a PARTICULARS AMOUNT Average inventories90 Add: Average Account recievable60 Firm 's operating cycle( days)150 b. Calculate the firm’s cash conversion cycle.b PARTICULARS AMOUNT Average inventories90 Add: Average Account recievable60 Firm 's operating cycle150 Less:Average Accounts payable30 Firm's cash conversion cycle120 c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.c PARTICULARS AMOUNT Inventory 7,307,260.27 7307260.27= (30,000,000 x 90/365) Add: Accounts Recievable4,931,506.85 4,931,506.85= (30,000,000 x 60/365) Less: Accounts payable2,465,753.42 2,465,753.42=(30,000,000 x 30/365) Resources needed to support the firm CCC's9,773,013.70 d. Discuss how management might be able to reduce the cash conversion cycle.dThe cash conversion can be reduced by increasing the payable time and decreasing the recievable time or by the combination of both P15-4 P15–4 Aggressive versus conservative seasonal funding strategy Dynabase Tool has forecast its total funds requirements for the coming year as shown in the following table. MonthAmountMonthAmount January$2,000,000July$12,000,000 February 2,000,000August 14,000,000 March 2,000,000September 9,000,000 April 4,000,000October 5,000,000 May 6,000,000November 4,000,000 June 9,000,000December 3,000,000 a. Divide the firm’s monthly funds requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components. aAverage permanent requirement = $24,000,000 / 12 = $2,000,000$2,000,000.00 Average seasonal requirement = $48,000,000 / 12 = $4,000,000$4,000,000.00 b. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a conservative funding strategy. Assume that, under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs. bAggressive funding strategy : It will finance seasonal needs with short-term funding, so amount will be $4,000,000 as calculated in part a. And the permanent needs will be financed with long term funds and the amount will be $2,000,000 Conservative funding strategy : It will finance the highest requirement level i.e. $14,000,000 with long-term debt. c. Assuming that short-term funds cost 5% annually and that the cost of long-term funds is 10% annually, use the averages found in part a to calculate the total cost of each of the strategies described in part b. Assume that the firm can earn 3% on any excess cash balances. cAggressive = 2,000,000 * 10% + 4,000,000 * 5% Aggressive Strategy$400,000.00 Conservative Strategy = Peak Level * 10% = $14,000,000 * 10% Conservative Strategy$1,400,000.00 d. Discuss the profitability–risk tradeoffs associated with the aggressive strategy and those associated with the conservative strategy. dIn the given case, there is a huge difference in cost associated with aggressive strategy and conservative strategy. The conservative strategy is almost three times more expensive as compared to aggressive strategy, which makes aggressive strategy more attractive. Thus, aggressive strategy is more profitable and also more risky because the firm may face shortage of funds in future if the requirement suddenly increases and in such case it may not be able to gather the required funds. The firm has to pay interest on idle funds (net 7%) in case of conservative strategy which makes it more expensive. But it is also safer, because it would have ample funds to meet any kind of contingency. P15-15 P15–15 Lockbox system Eagle Industries believes that a lockbox system can shorten its accounts receivable collection period by 3 days. Credit sales are $3,240,000 per year, billed on a continuous basis. The firm has other equally risky investments that earn a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.) a. What amount of cash will be made available for other uses under the lockbox system? aamount of cash=annual credit sales *3/365 3,240,000* 3/365 26630.1369863014 b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system? net benefit( cost)=available cash x rate of return-cost of lock box -5005.48 Thus, the net cost of the lock box os $5,005.48. The proposed plan is not beneficial , thus, it should not be adopted P16-2 P16–2 Cost of giving up early payment discounts Determine the cost of giving up the discount under each of the following terms of sale. (Note: Assume a 365-day year.) a. 2/10 net 30.a. 2/10 means 2% discount for payment made within 10 days, otherwise payable in full by days 30 so discount % = 2% discount days = 10 payment days = 30 cost of giving up discount = 2%/(1-2%)*365/(30-10) 37.24% b 1/10 net 30. b. 1/10 net 30.cost of giving up discount = 1%/(1-1%)*365/(30-10) 18.43% c. 1/10 net 45.c. 1/10 net 45. cost of giving up discount = 1%/(1-1%)*365/(45-10) 10.53% d. 3/10 net 90. d. 3/10 net 90 cost of giving up discount = 3%/(1-3%)*365/(90-10) 14.11% e. 1/10 net 60.e. 1/10 net 60. cost of giving up discount = 1%/(1-1%)*365/(60-10) 7.37% f. 3/10 net 30.f. 3/10 net 30. cost of giving up discount = 3%/(1-3%)*365/(30-10) 56.44% g. 4/10 net 180.g. 4/10 net 180. cost of giving up discount = 4%/(1-4%)*365/(180-10) 8.95% Kanton Company KANTON COMPANY Morton Mercado, the CFO of Kanton Company, carefully developed the estimates of the firm's total funds requirements for the coming year. These are shown in the following table: MonthTotal FundsMonthTotal Funds January$1,000,000July$6,000,000 February$1,000,000August$5,000,000 March$2,000,000September$5,000,000 April$3,000,000October$4,000,000 May$5,000,000November$2,000,000 June$7,000,000December$1,000,000 In addition, Morton expects short-term financing costs of about 10% and long-term financing costs of about 14% during that period. He developed the three possible financing strategies that follow: Strategy 1 - Aggressive: Finance seasonal needs with short-term finds and permanent needs with long-term funds. Strategy 2 - Conservative: Finance an amount equal to the peak need with long-term funds and use short-term funds only in an emergency. Strategy 3 - Tradeoff: Finance $3,000,000 with long-term funds and finance the remaining funds requirements with short-term funds. Using data on the firm's total funds requirements, Morton estimated the average annual short-term and long-term financing requirements for each strategy in the coming year, as shown in the following table. AVERAGEANNUALFINANCING Type of FinancingStrategy 1 AggressiveStrategy 2 ConservativeStrategy 3 Tradeoff Short-term$2,500,000$0$1,666,667 Long-term$1,000,000$7,000,000$3,000,000 To ensure that, along with spontaneous financing from accounts payable and accruals, adequate short-term financing will be available, Morton plans to establish an unsecured short-term borrowing arrangement with its local bank, Third National. The bank has offered either a line-of-credit agreement or a revolving credit agreement. Third National's terms for a line of credit are an interest rate of 2.50% above the prime rate, and the borrowing must be reduced to zero for a 30-day period during the year. On an equivalent revolving credit agreement, the interest rate would be 3% above prime with a commitment fee of 0.50% on the average unused balance. Under both loans, a compensating balance equal to 20% of the amount borrowed would be required. The prime rate is currently 7%. Both the line-of-credit agreement and the revolving credit agreement would have borrowing limits of $1,000,000. For purposes of his analysis, Morton estimates that Kanton will borrow $600,000 on the average during the year, regardless of which financing strategy and loan arrangement it chooses. (Note: assume a 365-day year.) Case Study Questions: a. Determine the total annual cost of each of the three possible financing strategies. b. Assuming that the firm expects its current assets to total $4 million throughout the year, determine the average amount of net working capital under each financing strategy. (Hint: Current liabilities equal average short-term financing.) c. Using the net working capital found in part b as a measure of risk, discuss the profitability-risk trade-off associated with each financing strategy. Which strategy would you recommend to Morton Mercado for Kanton Company? Why? d. Find the effective annual rate under: 1) the line-of-credit agreement and 2) the revolving credit agreement. (Hint: Find the ratio of the dollars that the firm will pay in interest and commitment fees to the dollars that the firm will effectively have use of.) e. If the firm expects to borrow an average of $600,000, which borrowing arrangement would you recommend to Kanton? Why? Answers a Total annual cost under each financing strategies: ParticularsType of FinancingTotal Annual Cost Short TermLong Term Finance Cost 10%14% Average Funds used under following strategies Strategy 1 Aggressive$2,500,000.00$1,000,000.00 Strategy 2 Conservative$0.00$7,000,000.00 Strategy 3 Tradeoff$1,666,667.00$3,000,000.00 Total Annual CostAverage funds used * Finance RateAverage funds used * Finance Rate Strategy 1 Aggressive$250,000.00$140,000.00$390,000.00 Strategy 2 Conservative$0.00$980,000.00$980,000.00 Strategy 3 Tradeoff$166,666.70$420,000.00$586,666.70 b. Net working capital ParticularsStrategy 1 AggressiveStrategy 2 ConservativeStrategy 3 Tradeoff Current Asset$4,000,000.00$4,000,000.00$4,000,000.00 Short Term Borrowings i.e. Current Liabilities$2,500,000.00$0.00$1,666,667.00 Net Working Capital = Current Assets - Current Liabilities$1,500,000.00$4,000,000.00$2,333,333.00 c Profitability-risk trade-off associated with each financing strategy. StrategyProfitability-risk and Strategy to select Strategy 1 AggressiveAverage Working Capital is on 1,500,000 under the Strategy 1 Aggressive. This working capital is not sufficient as Only Short term borrowing is adjusted. Company might have other liabilities too. Thus Company may not be able to pay off them. Thus, I would not recommend this strategy to the Company Strategy 2 ConservativeAverage Working Capital is on 4,000,000 under the Strategy 2 Conservative. Under this strategy, company will have the highest working capital amongst the all 3. This is also not ideal as the working capital is in excess and risk is associated with that too. Thus, I would not recommend this strategy