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Answer The Following Questions Very Carefully

The document contains 5 questions regarding financial planning and analysis. Question 1 involves preparing a monthly cash budget and cash requirements forecast for a company over 6 months. Question 2 asks to evaluate and select between two investment projects based on NPV and IRR. Question 3 involves calculating the impact of proposed changes to inventory, receivables, and payables on a company's cash conversion cycle. Questions 4(a) and 4(b) involve calculating implicit interest rates and determining economic order quantities. Question 5 asks to calculate a company's additional funds needed based on growth rates and financial ratios.

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Maham Imtiaz
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126 views2 pages

Answer The Following Questions Very Carefully

The document contains 5 questions regarding financial planning and analysis. Question 1 involves preparing a monthly cash budget and cash requirements forecast for a company over 6 months. Question 2 asks to evaluate and select between two investment projects based on NPV and IRR. Question 3 involves calculating the impact of proposed changes to inventory, receivables, and payables on a company's cash conversion cycle. Questions 4(a) and 4(b) involve calculating implicit interest rates and determining economic order quantities. Question 5 asks to calculate a company's additional funds needed based on growth rates and financial ratios.

Uploaded by

Maham Imtiaz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ANSWER THE FOLLOWING QUESTIONS VERY CAREFULLY

Question 1: Malik foods has a following sales forecasts for parts of 2019 and 2020:

May 2019 Rs.200,000


June 300,000
July 300,000
August 450,000
September 520,000
October 600,000
November 400,000
December 400,000
January 2020 300,000

Estimates regarding payments obtained from the credit department are as follows: collected
within the month of sale, 30%; collected the month following the sale, 50%; collected the second
month following the sale, 20%. Labor and raw material is estimated as 75% of the next month
sales. Payments for labor and raw materials are made the month after these services were
provided. Here are the estimated costs of labor plus raw materials:

Other payments are expected to be as follow:

a) General and administrative salaries are approximately Rs.40,000 a month.


b) Depreciation charges are Rs.20,000 a month.
c) Lease payments under long-term leases are Rs.10,000 a month.
d) Miscellaneous expenses are Rs.5000 a month.
e) Income tax payments of Rs.50,000 are due in September and December.
f) A progress payment of Rs.200,000 on a new design studio must be paid in October.

Cash on hand on July 1 will be Rs.150,000, and a minimum cash balance of Rs.100,000 should
be maintained throughout the cash budget period.

a. Prepare a monthly cash budget for the last 6 months of 2019.


b.Prepare monthly estimates of the required financing or excess funds—that is, the amount of
money the firm will need to borrow or will have available to invest.

Question 2:
Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These
projects are mutually exclusive, equally risky, and not repeatable. Which project should be
selected?
a) If the project is selected on the bases of NPV
b) If the project is selected on the bases of IRR

WACC: 10.00%
Year 0 1 2 3 4
CFS -$1,025 $650 $450 $250 $50
CFL -$1,025 $100 $300 $500 $700

Question 3:

Edison Inc. has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm's
cost of goods sold is 75% of sales. On average, the company has $9,000,000 in inventory,
$8,000,000 in accounts receivable and 262,5000 in accounts payable. The firm is looking for
ways to shorten its cash conversion cycle. Its CFO has proposed new policies that would result
in a 20% reduction in both average inventories and accounts receivable, while the payables
deferral period would remain unchanged. What effect would these policies have on the
company's cash conversion cycle? Round to the nearest whole day.
If Edison finances its working capital through a bank loan costing 8% per annum, how much
increase in the pre-tax profit is expected with the proposed change?

Question 4:

a) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal
annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume
a 365-day year.)

b) ABC Ltd. is in a trading business where they buy finished product of ceiling fans and sell it as
a wholesaler and retailer. As per their experience, they sell 40000 units per year on a continuous
basis. There is a Rs.2000 fixed cost of an order regardless the size of the order and the carrying
cost is Rs.50 per unit per year. It takes two days to receive a shipment after an order is placed,
and the firm wishes to hold in inventory 10 days’ usage as a safety stock.
a. Calculate the EOQ.
b. Determine the average level of inventory.
c. Determine the reorder point.

Question No 5:
Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to
forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown
below. Based on the AFN equation, what is the AFN for the coming year?

Last year’s sales = $200,000 Last year's accounts payable $50,000


Sales growth rate = 40% Last year's notes payable $15,000
Last year’s total assets = $135,000 Last year's accruals $20,000
Last year’s profit margin = 20.0% Target payout ratio 25.0%

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