Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 11, Problem 6SP
Summary Introduction
To determine: The project’s
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(Calculating free cash flows) Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will decline due to
increased efficiencies in getting inventory to showrooms. As a result of this new distribution center, Spartan expects a change in EBIT of $900,000. Although inventory is expected to drop from
$82,000 to $65,000, accounts receivables are expected to climb as a result of increased credit sales from $85,000 to $190,000. In addition, accounts payable are expected to increase from $67,000
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A firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $12,000. It will offer more liberal sales terms, but this will result in average receivables increasing by $69,000. These actions are expected to increase sales by $820,000 per year, and cost of goods will remain at 80% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase by $37,000. What effect will these changes have on the firm’s cash cycle? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Change in cash cycle
days
The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm
is expecting a 30 percent increase in sales next year, and management is concerned about the company's need for external funds.
The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset
utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.
Sales
Expenses
Earnings before interest and taxes
Interest
Earnings before taxes
Taxes
Earnings after taxes
Dividends
Current assets
Income Statement
Cash
Accounts receivable
Inventory
Fixed assets
Total assets
Assets
The firm
$ 250,000
184,800
$ 65,200
8,600
$ 56,600
16,600
$ 40,000
$ 16,000
Balance Sheet (in $ millions)
$ 221,000
Liabilities and Stockholders' Equity
$ 4,000 Accounts payable
Accrued wages
53,000
68,000
Accrued taxes
$ 125,000
96,000
Current liabilities
Notes payable
Long-term debt…
Chapter 11 Solutions
Foundations Of Finance
Ch. 11.A - Prob. 1MCCh. 11.A - Prob. 2MCCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - If a project requires an additional investment in...Ch. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 1SPCh. 11 - (Relevant cash flows) Captins Cereal is...
Ch. 11 - Prob. 3SPCh. 11 - Prob. 4SPCh. 11 - Prob. 5SPCh. 11 - Prob. 6SPCh. 11 - Prob. 7SPCh. 11 - Prob. 9SPCh. 11 - Prob. 10SPCh. 11 - Prob. 11SPCh. 11 - Prob. 12SPCh. 11 - Prob. 15SPCh. 11 - (Real options and capital budgeting) You have come...Ch. 11 - (Real options and capital budgeting) Go-Power...Ch. 11 - (Real options and capital budgeting) McDoogals...Ch. 11 - (Risk-adjusted NPV) The Hokie Corporation is...Ch. 11 - (Risk-adjusted discount rates and risk classes)...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Should the project be accepted? Why or why not?Ch. 11 - Prob. 11MCCh. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MC
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