Akkudu Ltd, is a manufacturing company that produces electronic gadgets in bulk quantities for its customersin Oman. The company was able to sustain a reasonable amount of sales in the last two quarters despite thepandemic-crisis during the last year. However, the company has faced some serious liquidity problems due todelayed payment by the customers and lower sales in the first two quarters. Hence, the company is seriouslythinking about revising its working capital standards by considering the changes in the market. The financemanager of the company is seeking your help in assessing the average payment period from the followingfinancial data.During the last year the company started its operations with an opening stock of OMR 22,000 and made apurchase of 50,000 OMR. The company has returned OMR 5000 worth material due to quality issues. Duringthe last year, the business has paid OMR 6000 as wages. The company sold goods for a total amount of OMR80,000 of which OMR 50,000 sales was on cash basis. Average debtors during the last year was 10,000 OMR,average creditors were 15,000 OMR and closing inventory was OMR 20,000.Choose the average payment period of Akkudu Ltd. from the following?O a. 101.253Ob. 110.253O c. 121.67O d. 140.059

Average payment period =Average debtor x 365/Total credit sales Credit sales =80000-50000 Credit…

r sales in the first two quarters. Hence andards by considering the changes i p in assessing the average payment p operations with an opening stock of eturned OMR 5000 worth material d 0 as wages. The company sold good sh basis. Average debtors during the ing inventory was OMR 20,000. udu Ltd. from the following?

r sales in the first two quarters. Hence andards by considering the changes i p in assessing the average payment p operations with an opening stock of eturned OMR 5000 worth material d 0 as wages. The company sold good sh basis. Average debtors during the ing inventory was OMR 20,000. udu Ltd. from the following?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 1MC: During the last few years, Jana Industries has been too constrained by the high cost of capital to...

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During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new issue. Jana’s common stock is currently selling at $50 per share. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium. Jana’s target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. To help you structure the task, Leigh Jones has asked you to answer the following questions: (1) What sources of capital should be included when you estimate Jana’s weighted average cost of capital? (2) Should the component costs be figured on a before-tax or an after-tax basis? (3) Should the costs be historical (embedded) costs or new (marginal) costs?
Amman Ltd. is a manufacturing company that produces paper cups and plates in Nizwa. The company was able to sustain a reasonable amount of sales in the last two quarters despite the pandemic-crisis during the last year. However, the company has faced some serious liquidity problems due to delayed payment by the customers and lower sales in the first two quarters. Hence, the company is seriously thinking about revising its working capital standards by considering the changes in the market. The finance manager of the company is seeking your help in assessing the Average payment period from the following financial data. The company had an opening stock of OMR 20,000 during the last year and made a total purchase of 48,000 OMR. The company has returned OMR 3000 worth material due to quality issues. During the last year, the business has paid OMR 6000 as wages and OMR 8000 as salaries. The company sold goods for a total amount of OMR 70,000 of which OMR 30,000 sales was on cash basis.…
Ameer Ltd. is a manufacturing company that produces toys for kids. The company was able to sustain a reasonable amount of sales in the last two quarters despite the pandemic-crisis during the last year. However, the company has faced some serious liquidity problems due to delayed payments by the customers and lower sales in the first two quarters. Hence, the company is seriously thinking about revising its working capital standards by considering the changes in the market. The finance manager of the company is seeking your help in assessing the Average inventory processing period from the following financial data. The company had an opening stock of OMR 10,000 during the last year and made a total purchase of 27,000 OMR. The company has returned OMR 2000 worth material due to quality issues. During the last year, the business has paid OMR 3000 as wages and OMR 6000 as salaries. The company sold goods for a total amount of OMR 50,000 of which OMR 20,000 sales was on cash basis. Average…
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Mary Simpson who is an assistant to Leigh Jones, the financial vice president is asked to estimate Harry Davis’s cost of capital. Jones provides Simpson with the following data. 1. The firm’s tax rate is 40%. 2. The firm has 10% annual coupon bonds with 15 years remaining to maturity. The current price of the bond is $1, 096.26. The bond’s yield-to-maturity is 8.82%. 3. The firm’s balance sheet shows $100 million long-term debt and $300 million common equity. Simpson estimates the market risk premium as the historical average return on stocks minus the current return on Treasury bonds and obtains a 15.4% of the cost of common stock based on the CAPM. Simpson calculates the…
Too little working capital had been a constant problem at Industrial Robotics (IR), a designer of automated manufacturing equipment. But, in 2010, with 47 employees and seven offices across North America, IR faced a cash shortage that threatened to hit $1 million. Founder Jack Miller wasn’t concerned. But his banker, Mario Sarducci, thought that amount was too much for a company barely doing $5 million in sales. Sarducci had worked on the IR file for the previous decade and wanted Miller to reduce his travelling expenses, shrink overhead, maximize profits, and give the bank good financial information. “You’re not running a profitable operation,” Sarducci lectured, “and your balance sheet doesn’t support your credit. My bank has gone as far as it will go.” Indeed, the bank had gone even further. At the end of 2010, IR had overdrawn its $800,000 line of credit by $300,000. If Sarducci had refused to honour those cheques, he would have forced the company to close. But Miller wasn’t…
PCW Co is a listed company that operates in the automobile industry. Due to an increase in local demand for the company’s products, PCW Co decides to invest in a new machinery. Such an investment project requires some initial investment in working capital of $300,000. And the investment in working capital is subject to general inflation, which is forecasted to be 5% per annum. The cost of the new machine is $3 million. Each year, the new investment is estimated to generate 7,000 products and all of them are expected to be sold. For simplicity’s reason, there is no scrap value of the machine. The usual lifetime of the machinery would be 3 years, after which it is supposed to be replaced. The costs and selling price in current price terms are summarised as follows: Annual sector-specific inflation Variable costs. $100 / unit 6.0 % Incremental fixed costs $200,000 / year. 4.5 % Selling price $400 / unit…
Vaughn Manufacturing is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Vaughn Manufacturing’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Vaughn Manufacturing’s suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Vaughn Manufacturing’s customers are slow in paying for their purchases (60–90 days). As a result, Vaughn Manufacturing has a cash flow problem.Vaughn Manufacturing needs $144,200 to cover next Friday’s payroll. Its balance of outstanding accounts receivable totals $838,100. To alleviate this cash crunch, the company sells $161,000 of its receivables.Record the entry that Vaughn Manufacturing would make. (Assume a 2% service charge.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.) ACCOUNT TITLES AND EXPLANATION account title debit…
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana's cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm's tax rate is 40%. The current price of Jana's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…