Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 26, Problem 15P
Use the financial statements supplied on the next page for International Motor Corporation (IMC) to answer the following questions.
- a. Calculate the cash conversion cycle for IMC for both 2015 and 2016. What change has occurred, if any? All else being equal, how does this change affect IMC’s need for cash?
- b. IMC’s suppliers offer terms of Net 30. Does it appear that IMC is doing a good job of
managing its accounts payable?
| International Motor Corporation | ||
| Income Statement (in $ million) for the Years Ending December 31 | ||
| 2015 | 2016 | |
| Sales | $ 60,000 | $ 75,000 |
| Cost of goods sold | 52,000 | 61,000 |
| Gross profit | $ 8,000 | $ 14,000 |
| Selling and general and administrative expenses | 6,000 | 8,000 |
| Operating profit | $ 2,000 | $ 6,000 |
| Interest expense | 1,400 | 1,300 |
| Earnings before tax | $ 600 | $ 4,700 |
| Taxes | 300 | 2,350 |
| Earnings after tax | $ 300 | $ 2,350 |
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Problem 2-21 Financial Statements
Use the following information for Ingersoll, Incorporated. Assume the tax rate is 23
percent.
2020
2021
Sales
Depreciation
$ 19,073
$17,436
1,811
1,886
Cost of goods sold
4,729
4,857
Other expenses
1,021
899
Interest
870
1,001
Cash
6,292
6,916
Accounts receivable
8,190 9,877
Short-term notes payable
1,320 1,297
Long-term debt
20,770 25,011
Net fixed assets
51,218 54,723
Accounts payable
4,624 5,094
Inventory
14,538
15,438
1,700 1,768
Dividends
Prepare a balance sheet for this company for 2020 and 2021. (Do not round
intermediate calculations.)
Cash
Assets
Accounts receivable
Inventory
INGERSOLL, INCORPORATED
Balance Sheet as of December 31
2020
2021
$
6,292 $
6,916
8,190
9,877
14,538
15,438
Drov
14 of 20
Ne
Problem 6-35 Financial Break-Even Analysis
The technique for calculating a bid price can be extended to many other types of
problems. Answer the following questions using the same technique as setting a bid
price; that is, set the project NPV to zero and solve for the variable in question. Martin
Enterprises needs someone to supply it with 152,000 cartons of machine screws per
year to support its manufacturing needs over the next five years, and you've decided to
bid on the contract. It will cost $1,920,000 to install the equipment necessary to start
production; you'll depreciate this cost straight-line to zero over the project's life. You
estimate that, in five years, this equipment can be salvaged for $162,000. Your fixed
production costs will be $277,000 per year, and your variable production costs should be
$10.60 per carton. You also need an initial investment in net working capital of $142,000.
The tax rate is 22 percent and you require a return of 12 percent on your investment.…
Chapter 26 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
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