CHAPTER 12 PLEASE SHOW ALL WORK AND HAVE THE ANSWERS HIGHLIGHTED CHAPTER 13 CRITICAL THINKING PLEASE ANSWER EACH QUESTION WITH CLEAR KNOWLEDGE AND UNDERSTANDING. PLEASE ELABORATE WHEN ASKED. CHAPTER...

Chapter 12
    EVALUATING WHICH PROJECT HAS A HIGHER RATE OF RETURN THAN THE COST OF CAPITAL
    Rf    4%
    Rm    12%
    Cost of capital    12%
    Project     Beta    IRR    Expected return     ANSWER (B)
    W    0.8    10.20%    10.40%    REJECTED
    X    0.9    11.40%    11.20%    ACCEPTED
    Y    1.1    12.60%    12.80%    REJECTED
    Z    1.35    15.10%    14.80%    ACCEPTED
    Expected return = Rf + beta(Rm-Rf)
    NOTE:
    W    Expected return is lower than the cost of capital
    X    Expected return is lower than the cost of capital
    Y    Expected return is higher than the cost of capital
    Z    Expected return is higher than the cost of capital
    ANSWER TO PART (C)
    Using WACC    DECISION
    12%    CORRECTLY REJECTED
    12%    INCORRECTLY REJECTED
    12%    INCORRECTLY ACCEPTED
    12%    CORRECTLY ACCEPTED
Chapter 13
    Cash conversion cycle is said to be the measure of the cash cycle which is calculated as the sum of a firm’s total inventory days and receivables days minus it’s accounts payables days.
    Therefore, Cash cycle = Cash operating cycle – accounts payables
    Operating cycle defines the time period in which the company can sell its inventory and change into liquid cash.
    Payable period days are termed as the days a company takes to pay off it’s creditors for buying the goods. If the payables amount increases the n it can shorten the cash cycle days which can demonstrated by the following example:
    Payables= 2
    Operating cycle = 5
    Therefore, the cash cycle would be = 5-2 = 3.
    Now if the payables increases to 3 from 2 then the cash cycle becomes 2 by applying the above.
    Therefore, it can be said that the cash cycle will decrease by an increase in the payables and the operating cycle will also increase.
    (b) The period of receivables increased thereby increasing their cash and operating cycles.
    (c) It has been noticed that large firms tend to take advantage of small firms by threatening them about taking their businesses elsewhere. Therefore, moving to other suppliers who are offering better terms are in the nature of non-competitive enterprises.
    One of the most important decisions for an organization is working capital management of the entity because working capital ensures short term liquidity of the company which is calculated by deducting the current liabilities from the current assets. Financial management is distributed in short term and long term considering the timing of cash flows. Generally, short term management of finances handles the cash movements within an enterprise over a period of one year. Therefore, the two components which are important here are cash and operating cycles.
    Below are impact on the company due to increase in accounts payables period:
1. BlueSky has increased it’s accounts payables days from 30 days to 45 days.
2. The cash cycles of BlueSky will decrease due to an increase in the accounts payables period. However, it can increase the operating cycles of creditors and accounts receivables period for them will increase.
3. Therefore, this will have a negative impact on the BlueSky’s suppliers and as a result the suppliers will be paid late for their supplies
4. Delaying the payment to be made to all the small suppliers of the firm is not an ethical policy and can destroy the financial...