ESSENTIALS OF INVESTMENTS SELECT CHAPT
17th Edition
ISBN: 9781307126228
Author: Bodie
Publisher: MCG/CREATE
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Chapter 9, Problem 27C
Summary Introduction
To determine:
To compare discrepancy in price and NAV of diversified and less diversified mutual funds in case of violation of law of one price.
Introduction:
Price and NAV are directly affected when Law of One price gets violated as Diversified Mutual Funds involves investing in varied securities in order to reduce risk and vice versa. So, when the law gets violated investors tend to hedge less.
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Wildcat, Incorporated, has estimated sales (in millions) for the next four quarters as follows:
Q1
Q2
Q3
Sales $ 125 $ 145 $ 165
Q4
$ 195
Sales for the first quarter of the following year are projected at $140 million. Accounts receivable at the beginning of the year were
$55 million. Wildcat has a 45-day collection period.
Wildcat's purchases from suppliers in a quarter are equal to 45 percent of the next quarter's forecast sales, and suppliers are normally
paid in 36 days. Wages, taxes, and other expenses run about 20 percent of sales. Interest and dividends are $10 million per quarter.
Wildcat plans a major capital outlay in the second quarter of $81 million. Finally, the company started the year with a cash balance of
$70 million and wishes to maintain a $30 million minimum balance.
a. Complete the following cash budget for Wildcat, Incorporated.
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in
millions,…
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Chapter 9 Solutions
ESSENTIALS OF INVESTMENTS SELECT CHAPT
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