13 - 18.Does a shorter or a longer operating cycle indicate the efficiency of a business? whatabout for the cash conversion cycle?19 - 22.When compared with last year, a company's inventory turnover increased. What positivesituation might this reflect?23 25.What is the incentive of management in computing efficiency ratios?26 - 27. Total assets is 100,000. Total debt is 50,000. What is the debt-to-equity ratio?28 29. (Average/Difficult) If the pro forna balance sheet shows that total asset increase byPHP400,000 while retaining a debt-equity ratio of .75 then:A. debt must increase by PHP300,000.B. equity must increase by the ful PHPH400,000.920C. debt must increase by PHP171,428.4,012.018.284 0D. equity must increase by PHP100,000.30 – 34. What is a good capital structure? Are low debt ratios aiways favorable?35 – 40. In starting a business, is it okay to siart with having debt during the early stages? Whatdictates the company's choice of leverage structure?

Since you have posted a question with multiple questions, we will solve the first question for you.…

Answered: 13 - 18.Does a shorter or a longer…

13 - 18.Does a shorter or a longer operating cycle indicate the efficiency of a business? What about for the cash conversion cycle?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 2STP

See similar textbooks

Related questions

Q: Which loan should Spike take and why?

A: Simple interest method is a method of computing interest on borrowed amount where interest is…

Q: stment of 100,000 is to be used to make payments of 4,000 at the end of each quarter for as long as…

A: The payments are made periodically that carry the payment of principal amount and payment of…

Q: You want to buy a $135,000 home. You plan to pay 20% as a down payment, and take 6.9% interest for…

A: Loans are paid by the equal monthly payments that carry the payment for principal amount and also…

Q: On the day his son was born, a father deposited to a trust company a sufficient amount of money so…

A: Future value of an investment is the value of total money in the investment account at a future…

Q: Companies invest in expansion projects with the expectation of increasing the earnings of its…

A: Net Present Value (NPV) of a project is the sum of the present value of the cash outflow or inflow.…

Q: You are considering a project which will cost $140,000. It is expected to bring in incomes of…

A: Initial cost = $140,000 Annual income (C) = $45,000 Period (n) = 5 Years Discount rate (r) = 0.12…

Q: $1,000 $1,000 2T $500 $500 2 3 4 5 6 2 3 4 5 EOY EOY 3T.

A: For calculating the value of 'T' we shall find the present value of both the cash flows and compare…

Q: Una Day is planning to retire in 20 years, at which time she hopes to have accumulated enough money…

A: Retirement fund: A retirement fund is a particular fund into which people contribute money in order…

Q: flowmax sdn bhd sign note with a payment of $18,800 per month for 5 years. find the amount they must…

A: Present Value of Ordinary Annuity refers to the concept which dictates the discounted value of a…

Q: A debt of $4,000.00 is to be paid off with 8 equal semi-annual payments. If the interest rate is 15%…

A: Repaying debt in equal instalments is a type of annuity. That is any number of payments of equal…

Q: You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a…

A: Formula Portfolio beta = (Weight of stock 1*Beta of stock 1)+(Weight of stock 2*Beta of stock 2)…

Q: Should we proceed with this project? Initial Investment = $5,000,000 Taxes = 35% Beta = 1.27 T…

A: Given, We have to find out the Net present value first and then to see that whether we should go…

Q: A cash flow strategy that can be used by a company is to swap short-term debt for long-term debt.…

A: Given, A strategy that is used by a company to swap the short-term debt as compared to the long…

Q: The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an…

A: Net Present Value is a capital budgeting technique which is used to know the profitability of the…

Q: Examine the halance sheet for a bank below: Assets Liabilities Reserves 600 000 Demand Deposits 5…

A: Given: Current Reserves = 600000 Current Demand Deposit = 5230000 Desired reserve ratio = 5%

Q: Differentiate some of the implications of Efficient Securities Markets (ESM) for financial reporting…

A: Stakeholders are those who are interested in the company and can influence or be influenced by the…

Q: The insurance Commissioner must approve which of the following types of insurance rates prior to…

A: An insurance is defined as the method of the risk management with the regard to one's properties or…

Q: The current price of Estelle Corporation stock is $23.00. In each of the next two years, this stock…

A: High price = Current price ×up move = $23 ×1.23 = $28.29Low price = Current price ×down move =$23…

Q: 4. Stock M and N have the following probability distribution of returns: ETII Returns Economic…

A: Concept. Coefficient of variation of portfolio = risk of portfolio ÷ return of portfolio

Q: Cooper Industries is considering a project that would require an initial investment of P235,000. The…

A: Solution:- Internal Rate of Return (IRR) is the rate of return which the project is yielding. At…

Q: Interpret the results: • Return on equity • Return on assets • Gross profit margin • Operating…

A: The financial ratios are used as a measure of the financial health of the company.

Q: The present value of the bond is $. (Round to the nearest cent.)

A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…

Q: n American manufacturing company has new equipment with a first cost of $ 25,000, an estimated…

A: The SYD method is the sum of years digit method. In this method an asset is depreciated at an…

Q: Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at…

A: As per formula; Cost of common equity = D0 * (1 + g) / P0 + g Where; D0 = Current dividend i.e.…

Q: After-tax cost of capital 8% Tax rate 28% Assume depreciation is calculated on a straight-line…

A: Net present value is the difference between Present Value of cash Inflows and Initial Investment…

Q: Mr. Francis requires Rs. 20,000 at the beginning of each year from 2033 to 2037. The interest rate…

A: Deposits or withdrawal of equal amount of money at equal intervals of time for a fixed number of…

Q: Price a 3 month call using a one step binomial tree where the risk free rate is 1.00%. Where S0 is…

A: The binomial option pricing model is used to price derivatives that have a probability of different…

Q: 3b. A company made an additional (incremental) income of $10,000 during the last week of the year.…

A: Tax can be defined as an amount paid to the government on the income. It is a compulsory…

Q: Compute the future value of the following deposits made today: a. $10,000 at 6.75% compounding…

A: The future value of a certain deposit is the value of the deposit accumulated with interest. It is…

Q: What’s the present value of a perpetuity that pays $300 per year if the appropriate interest rate is…

A: present value of a perpetuity = Annual payment/Discount rate

Q: A. Cash sales B. Payment of Wages C. Purchase of machinery D. Credit sales

A: Cash budget for month would include the cash payment or that involves immediate cash payments. The…

Q: Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be…

A: First we need to calculate NPV of the project. NPV is the difference between present value of cash…

Q: Which is the correct answer? Use the following table for this question Present value of an Annuity…

A: Net present value is the difference between Present Value of cash Inflows and Initial Investment.…

Q: CAPITAL BUDGETING AND CASH FLOW ESTIMATION Allied Food Products is considering expanding into the…

A: The internal rate of return (IRR) is the interest rate at which the net present value (NPV) equals…

Q: Holtzman Clothiers's stock currently sells for $17.00 a share. It just paid a dividend of $2.75 a…

A: i) Stock price after one Year F = P(1+r)n where F= Future value P=present value r=rate of interest…

Q: Consider an economy with just two assets. The details of these are given below. Number of Shares…

A: Number of shares of A = 100 Number of shares of B = 150 Price of A = 1.5 Price of B = 2 The expected…

Q: The XYZ Company paid $1.75 dividend yesterday. Its dividend growth rate is expected to be constant…

A: Dividend discount model refers to a stock valuation model which is used by the company for…

Q: A 9-year promissory note for $5256 dated today bearing interest at 3% compounded quarterly is…

A: Given, Promissory note of 9 years = $5256 Interest = 3% (compounded quarterly 4 years) Date of…

Q: Bachelor’s Bus Co. uses the residual dividend model to determine its common dividend payout. This…

A: In the residual dividend model we find the retained earnings needed for the capital budget. Any…

Q: office 3-tray photocopier is for sale at PHP 16,000 in cash or on terms: PHP 2,500 down and PHP…

A: Option 1 : 16,000 in cash immediately Option 2 : Down-payment of 2500 and 1200 each month for 12…

Q: Jonathan invested a total of Php 20,000.00 in two simple interest savings accounts, one having an…

A: We need to use simple interest formula to calculate principal value at each rate. Simple interest…

Q: a. What are the expected returns of the two stocks? b. What are the standard deviations of the…

A: Expected return on a stock can be calculated as the mean of all returns on the stock. That is…

Q: A payday loan provides short-term loans ranging from $250 to $2,000. Assume the cost of the loan is…

A: Short term loan: Short-term loans are borrowed funds used to fulfill immediate liquidity demands,…

Q: Why are big oil’s big dividends are under threat

A: Big oil dividends refer to dividends paid by big oil companies. Historically big oil companies have…

Q: can step one be structure differently using P=p( r/n)/1-(1+r/n)

A: Here, The interest rate is r. The maturity period is n. The compounding frequency is m.

Q: 5 Dye Industries currently uses no debt, but its new CFO is considering changing the capital…

A: Beta refers to a measure of a market risk that cannot be diversified means it is a measure of…

Q: You receive $100 today, $200 in one year, and $300 in two years. If you deposit these cash flows…

A: Formula FV = CF0*(1+R)3+CF1*(1+R)2+CF2*(1+R)1 Where FV - Value of account after 3 years R - Interest…

Q: Jarett & Sons' common stock currently trades at $37.00 a share. It is expected to pay an annual…

A: Formula; Cost of common equity = D1 / P0 + g Where; D1 = Next dividend i.e. $1.25 P0 = Current stock…

Q: Product A Product B Initial cost $750,000 $650,000 Expected life 5 years 5 years Scrap value…

A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: How much would you have (to the nearest dollar) when you retire if the account pays 3% compounded…

A: Future Value of Annuity: It is the future worth of the company today and is computed by the product…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

13 - 18.Does a shorter or a longer operating cycle indicate the efficiency of a business? what
about for the cash conversion cycle?
19 - 22.When compared with last year, a company's inventory turnover increased. What positive
situation might this reflect?
23 25.What is the incentive of management in computing efficiency ratios?
26 - 27. Total assets is 100,000. Total debt is 50,000. What is the debt-to-equity ratio?
28 29. (Average/Difficult) If the pro forna balance sheet shows that total asset increase by
PHP400,000 while retaining a debt-equity ratio of .75 then:
A. debt must increase by PHP300,000.
B. equity must increase by the ful PHPH400,000.
920
C. debt must increase by PHP171,428.
4,012.0
18.284 0
D. equity must increase by PHP100,000.
30 – 34. What is a good capital structure? Are low debt ratios aiways favorable?
35 – 40. In starting a business, is it okay to siart with having debt during the early stages? What
dictates the company's choice of leverage structure?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Suppose the company has just the opposite news and now expects unit sales for August, September, and October to be double (200%) the original estimates. What effect will this have on the company’s net income and borrowing? Explain your findings.
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?
Looking at Morningstars Profitability ratios, what has happened to Hewlett Packards profit margin (net margin %) over the past 10 years? What has happened to its return on assets (ROA) and return on equity (ROE) over the past 10 years?
Suppose the company has to revise its estimates because of a downturn in the economy. Unit sales for August, September, and October will be half (50%) of the original estimates. Revise the estimates in cells 1311 through 1313. After this is done, check your forecasted balance sheet. It should still balance! What effect will this new state of affairs have on net income and borrowing? Explain why these items changed.
A firm’s balance sheets for the last two years are as follows (refer to image): Sales in 20X1 were $250,000. Sales in 20X2 were $250,000. a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved? b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know? c. Without doing a calculation, has inventory turnover deteriorated? How do you know? d. If the firm earned $5,000 during 2012, what proportion of those earningswere distributed?
A company with current-year sales of $4,500,000 and cost of goods sold of $3,248,000 reduced its inventory days from 119 days in the prior year to 115 days for the current year. Its receivable days slowed from 40 days to 43 days. What was the cash flow effect of these swing-factor efficiency changes?
A company has a required return of 12%, a profit margin of 4%, a D/E ratio of 0.5 and total asset turnover of 2. Annual dividends last year were $2.00. A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio. B) If the company would have changed its dividend payout ratio to 60%, what would happen to the price and forward P/E ratio? C) What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)
Use the information provided below to answer the question. The ratios are for last year, for ABC Inc and the average of its industry as follows ABC Inc Industry Average Inventory $150,000 $100,000 Accounts Receivable 24,000 24,000 Other Assets 76,000 76,000 Total Assets $250,000 $200,000 Profit Margin 1.8% 2% Equity $ 125,000 $ 125,000 Sales $ 1,100,000 $ 1,000,000 What is ABC’s Return on Equity (ROE)?
Last year, Thomas Co. had a profit margin of 10%, total assets turnover of 0.5, and a debt ratio of 20% (the company finances its assets with debt and common equity). This year, the company wats to double ROE. The CFO expects the total assets turnover will remain at 0.5, while the profit margin will increase enough to double ROE. Assume that the profit margin is increased to 15%, what debt ratio will the company need in order to double its ROE?
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. Income Statement Sales $ 240,000 Expenses 181,200 Earnings before interest and taxes $ 58,800 Interest 7,400 Earnings before taxes $ 51,400 Taxes 15,400 Earnings after taxes $ 36,000 Dividends $ 12,600 Balance Sheet Assets Liabilities and Stockholders' Equity Cash $ 6,000 Accounts payable $ 23,300 Accounts receivable 57,000 Accrued wages 1,800 Inventory 81,000 Accrued taxes 3,700 Current assets $ 144,000 Current liabilities $ 28,800 Fixed…
The most recent financial statements for a firm are shown here: Income Statement Balance Sheet Sales $ 39,850 Assets $ 135,000 Debt $ 37,000 Costs 26,100 Equity 98,000 Taxable income $ 13,750 Total $ 135,000 Total $ 135,000 Taxes (20%) 2,750 Net income $ 11,000 Assets and costs are proportional to sales; debt and equity are not. A dividend of $6,600 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $43,835. What is the external financing needed?