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Working capital investment required

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Question 20
&&& Nob-Orrow Inc. is considering an investment in a project that is similar in risk to its existing projects. The firm makes no use of debt and is entirely financed by common stock with a beta of 1.4. The expected return on the market portfolio is 10 percent and the risk-free rate is 4 percent. The required rate of return on this project is:

a. 14%
b. 6%
c. 12.4%
d. 10%
e. none of the above
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Question 20
&&& Nob-Orrow Inc. is considering an investment in a project that is similar in risk to its existing projects. The firm makes no use of debt and is entirely financed by common stock with a beta of 1.4. The expected return on the market portfolio is 10 percent and the risk-free rate is 4 percent. The required rate of return on this project is:

a. 14%
b. 6%
c. 12.4%
d. 10% ...

Solution Summary

This explains the steps of computation of working capital investment required

$2.19
Similar Posting

Working capital management and Operating cycle

Q1
Two companies, A and B, have the following balance sheet accounts:
A B
Current assets $ 150 $ 800
Fixed assets 300 2200
Current liabilities 75 600
Long-term debt 75 1000
Equity 300 1400
a. Compute values for all of the ratios that measure
working capital for firms A and B.
b. Compare Firm A to B with regards to its need for
working capital and how it finances its working capital
(short-term vs. long-term financing).

2. The Latigo Company has the following financial information:
Sales $200
Cost of goods sold 100
Administrative expense 44
Depreciation 40
Interest expense 2
Tax 7
Net profit $ 7
Cash $ 5
Accounts receivable 20
Inventory 25
Fixed assets 50
Accounts payable 5
Note payable 15
Long-term debt 20
Equity 70
a. The current assets to sales ratio for the industry is 0.20. State whether Latigo make more or less use of working capital than the industry.
b. Compute the working capital turnover for Latigo and for the industry.
c. Compute the operating cycle and the cash conversion cycle for Latigo.
d. The industry average cash conversion cycle is 112 days. Compare the industry to Latigo and identify any inferences that you can make.

A.
CURRENT ASSETS TO SALES RATIO
CURRENT ASSETS 50
SALES 200
RATIO 0.25
It is utilizing working capital less efficiently as it has got higher ratio then the industry.
The lower the current-assets to-sales ratio, the less a firm needs to invest in working capital
to generate a dollar of sales, which usually means that the firm is utilizing its working capital in a more resourceful manner.

b. Compute the working capital turnover for Latigo and for the industry.

I need help with questions 1 and 2 in the problem section at the back of the attached chapter. I need all solutions in Microsoft excel along with the written answers to the questions.

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(See attached file for full problem description)

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