Your manufacturing company is facing a cash crunch, and the chief financial officer (CFO) is having difficulties allocating the cash to pay various company bills.
Then, for each strategy, describe at least 1 pro and 1 con of implementing that strategy.
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1. Factoring accounts receivable - with this strategy the company can sell its accounts receivable or assign it in exchange for a loan. When it sells its accounts receivable, it can either transfer the receivables to the financier or retain the responsibility of collection, at the option of the financier. When it assigns its receivables, the company will collect, but from the proceeds, will have to pay the loan first.
i. this strategy has lower credit checks and formalities
ii. no loan covenants and pre-payment penalties (Correia, Flynn, Uliana & Wormald, 2007, pp. 12-25-12-26).
i. Facilities providing these type of financing may be very difficult to locate
ii. Interest costs related to this type of financing is relatively high
2. Offering discounts to customers for paying within a certain period
i. Costs relatively nothing
ii. May even increase sales
iii. Improves the company's mix of accounts ...
The propose of working capital management strategy for accounts are examined. The pros and cons of implementing the strategy is examined.
1) What is the net present value of the project?
2) a. What is the gain from merger? b. What is the cost of the cash offer? c. What is the NPV of the acquisition under the cash offer?
25. Project Evaluation.
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25.
Year Unit Sales
It is expected that net working capital will amount to 20 percent of sales in the following year. For example, the store will need an initial (year-0) investment in working capital of .20 × 22,000 × $40 = $176,000. Plant and equipment necessary to establish the Giftware business will require an additional investment of $200,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 35 percent. What is the net present value of the project? The discount rate is 20 percent.
Merger Gains and Costs.
8. Merger Gains and Costs. Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles is willing to pay $14 million cash for Pogo. The opportunity cost of capital is 8 percent.
a. What is the gain from merger?
b. What is the cost of the cash offer?
c. What is the NPV of the acquisition under the cash offer?
Attached you will find the PDF documents to some practice study problems that I am still trying to grasp and understand. These are the ones that I did not know how to do. Your help is greatly appreciated.
Chapter 8: practice problem 25 on PDF document page 234
Chapter 21: practice problem 8 on PDF document page 595View Full Posting Details