1- Describe two types of risks that are seen in financial markets. How can managers minimize these risks?(100 words)
2- There are financial ratios that measure performance, efficiency, leverage and liquidity. Give an example of each. What can these ratios tell us about a company? (100 words)
3- Discuss the difficulties associated with a typical merger.(100 words)
4- Performance Measures. Describe some alternatives measures of a firm's overall performance. What are their advantages and disadvantages? In each case discuss what benchmarks you might use to judge whether performance is satisfactory?
5- Financial ratios. As you can see, someone has spilled ink over some of the entries in the balance sheet and income statement of Transylvania Railroad (see below). Can you use the following information to work out the missing entries? (NOTE: For this problem, use the following definitions: inventory turnover = COGS/average inventory; receivables collection period = average receivables / [sales/365])
- Long-term debt ratio: .4
- Times-interest- earned: .8
- Current ratio: 1.4
- Quick ratio: 1.0
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December 1, 2012
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December 1, 2011
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Balance Sheet
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cash
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???
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20
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acounts receivable
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???
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34
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inventory
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???
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26
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total current assets
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???
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80
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fixed assets,net
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???
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25
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total
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???
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105
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notes payable
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25
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20
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accounts payable
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30
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35
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total current liabilities
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???
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55
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long term debt
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???
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20
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equity
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???
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30
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total
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115
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105
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Income Statement
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sales
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???
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cost of goods sold
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???
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selling, general and administrative expenses
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10
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depreciation
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20
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EBIT
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???
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interest
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???
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earning before tax
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???
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tax
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???
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earning available for common stock
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???
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6- Cash Budget. Table 29.13lists below list data from the budget of Ritewell Publishers. Half the company's sales are for cash on the nail; the other half are paid for with a one-month delay. The company pays all its credit purchases with a one-month delay. Credit purchases in January were $30 and total sales in January were $180. Complete the cash bu dget in Table 29.14.
Table 29.13
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February
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March
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April
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Total sales
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$200
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$220
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$180
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purchases of materials
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for cash
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70
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80
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60
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for credit
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40
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30
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40
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other expenses
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30
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30
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30
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taxes, interest and dividends
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10
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10
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10
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capital investment
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100
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0
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0
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Table 29.14
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February
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March
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April
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Sources of cash:
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collections on cash sales
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collections on accounts receivables
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total sources of cash
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uses of cash:
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payments of accounts payable
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cash purchases of materials
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other expenses
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capital expenditures
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taxes, interest and dividends
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total uses of cash
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net cash flow
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cash at start of period
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100
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+ net cash inflow
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= cast at end of period
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+ minimum operating cash balance
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100
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100
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100
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= cumulative short term financing required
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7- Credit Terms. Phoenix Lambert currently sells its goods cash-on delivery. However, the financial manager believes that by offering credit terms of 2/10 net 30 the company can increase sales by 4% without significant additional cost. If the interest rate is 6% and the profit margin is 5%, would you recommend offering credit? Assume first that all customers take the cash discount. Then assume that they all pay on day 30.