All Related Questions of Net Working Capital

Q: Suppose you have been hired as a financial consultant to Defense Electronics

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company i...

Q: In an ideal economy, net working capital is always zero.

In an ideal economy, net working capital is always zero. Why might net working capital be positive in a real economy?

Q: Dog Up! Franks is looking at a new sausage system with

Dog Up! Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: Could a company’s change in net working capital be negative in a

Could a company’s change in net working capital be negative in a given year? Explain how this might come about. What about net capital spending?

Q: Howell Petroleum is considering a new project that complements its existing business

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.8 million. The marketing department predicts that sales related to t...

Q: Given the information for Anna’s Tennis Shop, Inc., in the

Given the information for Anna’s Tennis Shop, Inc., in the previous two problems, suppose you also know that the firm’s net capital spending for 2012 was $945,000 and that the firm reduced its net wor...

Q: In Problem 18, suppose Raines Umbrella Corp. paid out $

In Problem 18, suppose Raines Umbrella Corp. paid out $34,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued duri...

Q: Scott Investors, Inc., is considering the purchase of a $

Scott Investors, Inc., is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. Th...

Q: Consider the following abbreviated financial statements for Weston Enterprises:

Consider the following abbreviated financial statements for Weston Enterprises: a. What is owners’ equity for 2011 and 2012? b. What is the change in net working capital for 2012?...

Q: With the growing popularity of casual surf print clothing, two recent

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they...

Q: Ritter Corporation’s accountants prepared the following financial statements for year-end

Ritter Corporation’s accountants prepared the following financial statements for year-end 2012: a. Explain the change in cash during 2012. b. Determine the change in net working capi...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: Consider a project to supply Detroit with 35,000 tons of

Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project sta...

Q: Consider a project to supply Detroit with 35,000 tons

Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project st...

Q: Aguilera Acoustics, Inc. (AAI), projects unit sales for

Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 ……………………….……….. 83,000 2 ………….…………………….. 92,000 3 …………….………………… 104,00...

Q: Consider the following project for Hand Clapper, Inc. The company

Consider the following project for Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $8...

Q: A proposed cost-saving device has an installed cost of $

A proposed cost-saving device has an installed cost of $640,000. The device will be used in a five-year project but is classified as three year MACRS property for tax purposes. The required initial ne...

Q: Consider a project with a required return of R percent that costs

Consider a project with a required return of R percent that costs $ I and will last for N years. The project uses straight-line depreciation to zero over the N -year life; there are neither salvage va...

Q: McGilla Golf has decided to sell a new line of golf clubs

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that dete...

Q: McGilla Golf has decided to sell a new line of golf

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that det...

Q: Another utilization of cash flow analysis is setting the bid price on

Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price repres...

Q: Klingon Cruisers, Inc., purchased new cloaking machinery three years ago

Klingon Cruisers, Inc., purchased new cloaking machinery three years ago for $9.5 million. The machinery can be sold to the Romulans today for $6.5 million. Klingon’s current balance sheet shows net f...

Q: Etonic Inc. is considering an investment of $365,000

Etonic Inc. is considering an investment of $365,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year...

Q: The Best Manufacturing Company is considering a new investment. Financial projections

The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received...

Q: Your company has been approached to bid on a contract to sell

Your company has been approached to bid on a contract to sell 15,000 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be o...

Q: Financial information for Powell Panther Corporation is shown here.

Financial information for Powell Panther Corporation is shown here. a. What was net working capital for 2007 and 2008? b. What was the 2008 free cash flow? c. How would you explain the large increase...

Q: Bailey Corporation’s financial statements (dollars and shares are in millions)

Bailey Corporation’s financial statements (dollars and shares are in millions) are provided here. a. What was net working capital for 2007 and 2008? b. What was Baileyâ€&...

Q: Laiho Industries’ 2007 and 2008 balance sheets (in thousands of dollars

Laiho Industries’ 2007 and 2008 balance sheets (in thousands of dollars) are shown. a. Sales for 2008 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and a...

Q: Donna Jamison, a 2003 graduate of the University of Florida with

Donna Jamison, a 2003 graduate of the University of Florida with 4 years of banking experience, was recently brought in as assistant to the chairperson of the board of D’Leon Inc., a...

Q: You recently went to work for Allied Components Company, a supplier

You recently went to work for Allied Components Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief...

Q: Allied Food Products is considering expanding into the fruit juice business with

Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juice product. Assume that you were recently hired as assistant to the director of capital budgeting...

Q: In the HomeNet example from the chapter, its receivables are 15

In the HomeNet example from the chapter, its receivables are 15% of sales and its payables are 15% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and...

Q: Elmdale Enterprises is deciding whether to expand its production facilities. Although

Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first tw...

Q: Cellular Access, Inc., is a cellular telephone service provider that

Cellular Access, Inc., is a cellular telephone service provider that reported net income of $250 million for the most recent fiscal year. The firm had depreciation expenses of $100 million, capital ex...

Q: Bauer Industries is an automobile manufacturer. Management is currently evaluating a

Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to...

Q: Sora Industries has 60 million outstanding shares, $120 million in

Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years (see MyFinanceLab for the data in Excel...

Q: This year, FCF, Inc., has earnings before interest and

This year, FCF, Inc., has earnings before interest and taxes of $10 million, depreciation expenses of $1 million, capital expenditures of $1.5 million, and has increased its net working capital by $50...

Q: Aberdeen Outboard Motors is contemplating building a new plant. The company

Aberdeen Outboard Motors is contemplating building a new plant. The company anticipates that the plant will require an initial investment of $2 million in net working capital today. The plant will las...

Q: Your firm currently has net working capital of $100,000

Your firm currently has net working capital of $100,000 that it expects to grow at a rate of 4% per year forever. You are considering some suggestions that could slow that growth to 3% per year. If yo...

Q: Refer back to Problem 3-80B. In Problem

Refer back to Problem 3-80B. In Problem 3-80B The accounts of Cool River Service, Inc., at March 31, 2012, are listed in alphabetical order. Requirements 1. Prepare the company’s...

Q: Valley Forge Corporation reported the following current accounts at December 31,

Valley Forge Corporation reported the following current accounts at December 31, 2011 (amounts in thousands): Cash................................................ $1,500 Receivables......................

Q: Refer back to Problem 3-71A. In Problem

Refer back to Problem 3-71A. In Problem 3-71A The accounts of Mountain Lodge Service, Inc., at March 31, 2012, are listed in alphabetical order. Requirements 1. Use the Mountain Lodge data in Probl...

Q: Refer to Exercise 3-44B. In Exercise 3

Refer to Exercise 3-44B. In Exercise 3-44B The unadjusted trial balance and income statement amounts from the December 31 adjusted trial balance of Durkin Production Company follow. Requirements 1....

Q: Refer to Exercise 3-30A. In Exercise 3

Refer to Exercise 3-30A. In Exercise 3-30A The unadjusted trial balance and income statement amounts from the December 31 adjusted trial balance of Anderson Production Company follow. Requirements...

Q: KADS, Inc. has spent $400,000 on research

KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine wi...

Q: For each of the following actions, determine what would happen to

For each of the following actions, determine what would happen to the current ratio. Assume nothing else on the balance sheet changes and that net working capital is positive.

Q: Muffin’s Masonry, Inc’s balance sheet lists net fixed asset as $

Muffin’s Masonry, Inc’s balance sheet lists net fixed asset as $14 million. The fixed assets could currently be sold for $19 million. Muffin’s current balance sheet shows current liabilities of $5.5 m...

Q: Dandee Lions, Inc., has a cash balance of $105

Dandee Lions, Inc., has a cash balance of $105,000, accounts payable of $220,000, inventory of $203,000, accounts receivable of $319,000, notes payable of $65,000, and accrued wages and taxes of $75,0...

Q: JohnBoy Industries has a cash balance of $45,000,

JohnBoy Industries has a cash balance of $45,000, accounts payable of $125,000, inventory of $175,000, accounts receivable of $210,000, notes payable of $120,000, and accrued wages and taxes of $37,00...

Q: Go to the Excel spreadsheet versions of Tables 6.1,

Go to the Excel spreadsheet versions of Tables 6.1, 6.5, and 6.6 and answer the following questions. a. How does the guano project’s NPV change if IM&C is forced to use the seven-year MACRS tax...

Q: Each of the following statements is true. Use an example to

Each of the following statements is true. Use an example to explain why they are consistent. When a company introduces a new product, or expands production of an existing product, investment in net wo...

Q: The following table tracks the main components of working capital over the

The following table tracks the main components of working capital over the life of a four-year project. Calculate net working capital and the cash inflows and outflows due to investment in working ca...

Q: Look back at the Johnson & Johnson example in Section 18-

Look back at the Johnson & Johnson example in Section 18-1. Suppose Johnson & Johnson increases its long-term debt to $30 billion. It uses the additional debt to repurchase shares. Reconstruct...

Q: Let us go back to Circular File’s market value balance sheet:

Let us go back to Circular File’s market value balance sheet:
Who gains and who loses from the following maneuvers? a. Circular scrapes up $5 in cash and pays a cash dividend. b. Circular halts ope...

Q: Go back to the first Rational Demiconductor balance sheet. Now assume

Go back to the first Rational Demiconductor balance sheet. Now assume that Rational wins a lawsuit and is paid $1 million in cash. Its market capitalization rises by that amount. It decides to pay out...

Q: Go back to the first Rational Demiconductor balance sheet one more time

Go back to the first Rational Demiconductor balance sheet one more time. Assume that Rational does not win the lawsuit (see Problem 5) and is left with only $1 million in surplus cash. Nevertheless Ra...

Q: Proctor Power has fixed assets worth $200 million and net working

Proctor Power has fixed assets worth $200 million and net working capital worth $100 million. It is financed partly by equity and partly by three issues of debt. These consist of $250 million of First...

Q: Table 29.19 shows the 2016 financial statements for the Executive

Table 29.19 shows the 2016 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The c...

Q: There are no universally accepted definitions of financial ratios, but five

There are no universally accepted definitions of financial ratios, but five of the following ratios are clearly incorrect. Substitute the correct definitions. a. Debt–equity ratio = (long-term debt +...

Q: Consider this simplified balance sheet for Geomorph Trading: /

Consider this simplified balance sheet for Geomorph Trading: a. Calculate the ratio of debt to equity. b. What are Geomorph’s net working capital and total long-term capital? Calcu...

Q: The following financial statement was prepared by employees of your client,

The following financial statement was prepared by employees of your client, Linus Construction Company. The statement is not accompanied by footnotes, but you have discovered the following: â
...

Q: In Problem 19, suppose Raines Umbrella Corp. paid out $

In Problem 19, suppose Raines Umbrella Corp. paid out $25,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued duri...

Q: Conch Republic Electronics is a midsized electronics manufacturer located in Key West

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago...

Q: Consider the following abbreviated financial statements for Parrothead Enterprises:

Consider the following abbreviated financial statements for Parrothead Enterprises: a. What is owners’ equity for 2008 and 2009? b. What is the change in net working capital for 20...

Q: Consider a project to supply 100 million postage stamps per year to

Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $2,400,000 five years ago; if t...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fi ne zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: Aguilera Acoustics, Inc. (AAI), projects unit sales for

Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year …………………………..Unit Sales 1………………………………….………… 93,000 2……………………………………………105,000 3………………...

Q: A proposed cost-saving device has an installed cost of $

A proposed cost-saving device has an installed cost of $610,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial ne...

Q: Your company has been approached to bid on a contract to sell

Your company has been approached to bid on a contract to sell 17,500 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be o...

Q: In the previous problem, suppose the project requires an initial investment

In the previous problem, suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What...

Q: Dog Up! Franks is looking at a new sausage system with

Dog Up! Franks is looking at a new sausage system with an installed cost of $560,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: Alson Enterprises needs someone to supply it with 185,000 cartons

Alson Enterprises needs someone to supply it with 185,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It...

Q: Klingon Widgets, Inc., purchased new cloaking machinery three years ago

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7 million. The machinery can be sold to the Romulans today for $4.9 million. Klingon’s current balance sheet shows net fixe...

Q: Given the information for Maria’s Tennis Shop, Inc., in Problems

Given the information for Maria’s Tennis Shop, Inc., in Problems 11 and 12, suppose you also know that the firm’s net capital spending for 2009 was $940,000, and that the firm reduced its net working...

Q: What effect would the following actions have on a firm’s current ratio

What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive. a. Inventory is purchased. b. A supplier is paid. c. A short-term bank loan is repa...

Q: SDJ, Inc., has net working capital of $1,

SDJ, Inc., has net working capital of $1,370, current liabilities of $3,720, and inventory of $1,950. What is the current ratio? What is the quick ratio?

Q: You have just graduated from the MBA program of a large university

You have just graduated from the MBA program of a large university, and one of your favorite courses was “Today’s Entrepreneurs.” In fact, you enj...

Q: Shrieves Casting Company is considering adding a new line to its product

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line wou...

Q: The Campbell Company is considering adding a robotic paint sprayer to its

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls in...

Q: The president of the company you work for has asked you to

The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would...

Q: RxDelivery Systems is an R&D venture specializing in the development

RxDelivery Systems is an R&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the past sever...

Q: Wok Yow Imports, Inc., is a rapidly growing, closely

Wok Yow Imports, Inc., is a rapidly growing, closely held corporation that imports and sells oriental style furniture and accessories at several retail outlets. The equity owners are considering sell...

Q: The Castillo Products Company was started in 2014. The company manufactures

The Castillo Products Company was started in 2014. The company manufactures components for personal decision assistant (PDA) products and for other hand-held electronic products. A difficult operatin...

Q: The SoftTec Products Company is a successful small, rapidly growing,

The SoftTec Products Company is a successful small, rapidly growing, closely held corporation. The equity owners are considering selling the firm to an outside buyer and want to estimate the value of...

Q: Describe how a firm’s net working capital (NWC) is measured

Describe how a firm’s net working capital (NWC) is measured and how the NWC-to-total- assets ratio is calculated. What does this ratio measure?

Q: Determine the effect on the current ratio, the quick ratio,

Determine the effect on the current ratio, the quick ratio, net working capital (current assets less current liabilities), and the debt ratio (total liabilities to total assets) of each of the followi...

Q: It was shown earlier in the chapter that Eastland Industries was suffering

It was shown earlier in the chapter that Eastland Industries was suffering from cash flow insolvency. Let’s assume that scenario 1 projects that year 3 and following years will be like the results in...

Q: Could a company’s change in net working capital be negative in a

Could a company’s change in net working capital be negative in a given year? (Hint: Yes.) Explain how this might come about. What about net capital spending?

Q: Given the information for Jordan’s Golf Shop, Inc., in the

Given the information for Jordan’s Golf Shop, Inc., in the previous two problems, suppose you also know that the firm’s net capital spending for 2015 was $975,000 and that the firm reduced its net wor...

Q: Ritter Corporation’s accountants prepared the following financial statements for year-end

Ritter Corporation’s accountants prepared the following financial statements for year-end 2015: a. Explain the change in cash during 2015. b. Determine the change in net working capi...

Q: Schwert Corp. shows the following information on its 2015 income statement

Schwert Corp. shows the following information on its 2015 income statement: sales = $215,000; costs = $117,000; other expenses = $6,700; depreciation expense = $18,400; interest expense = $10,000; tax...

Q: In Problem 18, suppose Rainbow Umbrella Corp. paid out $

In Problem 18, suppose Rainbow Umbrella Corp. paid out $34,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued dur...

Q: Consider the following abbreviated financial statements for Weston Enterprises: /

Consider the following abbreviated financial statements for Weston Enterprises: a. What is owners’ equity for 2014 and 2015? b. What is the change in net working capital for 2015? c...

Q: Nextime Ltd. has operating profits (EBIT) of $87

Nextime Ltd. has operating profits (EBIT) of $87 million, a tax rate of 35 percent, net working capital of $129 million, and fixed assets of $285 million. Calculate Nextime’s return on invested capita...

Q: Dog Up! Franks is looking at a new sausage system with

Dog Up! Franks is looking at a new sausage system with an installed cost of $345,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: Howell Petroleum is considering a new project that complements its existing business

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to t...

Q: Consider a project with a required return of R percent that costs

Consider a project with a required return of R percent that costs $I and will last for N years. The project uses straight-line depreciation to zero over the N-year life; there are neither salvage valu...

Q: In the previous problem, suppose the project requires an initial investment

In the previous problem, suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. What...

Q: McGilla Golf has decided to sell a new line of golf clubs

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that dete...

Q: Etonic, Inc., is considering an investment of $395,

Etonic, Inc., is considering an investment of $395,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first ye...

Q: The Best Manufacturing Company is considering a new investment. Financial projections

The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received...

Q: RightPrice Investors, Inc., is considering the purchase of a $

RightPrice Investors, Inc., is considering the purchase of a $415,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line metho...

Q: With the growing popularity of casual surf print clothing, two recent

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they...

Q: This is a comprehensive project evaluation problem bringing together much of what

This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a financial consultant to Defense Elec...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: Consider a project to supply Detroit with 25,000 tons of

Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,700,000 investment in threading equipment to get the project sta...

Q: Aday Acoustics, Inc., projects unit sales for a new seven

Aday Acoustics, Inc., projects unit sales for a new seven-octave voice emulation implant as follows: Production of the implants will require $1,500,000 in net working capital to start and additional...

Q: Consider the following project for Hand Clapper, Inc. The company

Consider the following project for Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $15...

Q: A proposed cost-saving device has an installed cost of $

A proposed cost-saving device has an installed cost of $710,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial ne...

Q: Another utilization of cash flow analysis is setting the bid price on

Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price repres...

Q: Your company has been approached to bid on a contract to sell

Your company has been approached to bid on a contract to sell 15,000 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be o...

Q: Individual transactions often have a significant impact on ratios. This problem

Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact. Required: Indicate the effects of the previous transactions on each of t...

Q: After extensive research and development, Goodweek Tires, Inc., has

After extensive research and development, Goodweek Tires, Inc., has recently developed a new tire, the SuperTread, and must decide whether to make the investment necessary to produce and market it. Th...

Q: Fair-to-Midland Manufacturing, Inc. (FMM),

Fair-to-Midland Manufacturing, Inc. (FMM), has applied for a loan at True Credit Bank. Jon Fulkerson, the credit analyst at the bank, has gathered the following information from the companyâ...

Q: Bethesda Mining is a midsized coal mining company with 20 mines located

Bethesda Mining is a midsized coal mining company with 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The company operates deep mines as well as strip mines. Most of the coal min...

Q: In an ideal economy, net working capital is always zero.

In an ideal economy, net working capital is always zero. Why might net working capital be positive in a real economy?

Q: Arbortech, a designer, manufacturer, and marketer of PC cards

Arbortech, a designer, manufacturer, and marketer of PC cards for computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall Street during Year 6. Its...

Q: Lauryn’s Doll Co. had EBIT last year of $40 million

Lauryn’s Doll Co. had EBIT last year of $40 million, which is net of a depreciation expense of $4 million. In addition, Lauryn’s made $5 million in capital expenditures and increased net working capit...

Q: It’s been 2 months since you took a position as an assistant

It’s been 2 months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant a...

Q: Traid Winds Corporation, a firm in the 34 percent marginal tax

Traid Winds Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. This project involves the introducti...

Q: The Shome Corporation, a firm in the 34 percent marginal tax

The Shome Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. The project involves the introduction o...

Q: You are considering new elliptical trainers and you feel you can sell

You are considering new elliptical trainers and you feel you can sell 5,000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is u...

Q: Prepare a balance sheet from the following information. What is the

Prepare a balance sheet from the following information. What is the net working capital and debt ratio? Cash…………………………………………………………..$ 50,000 Accounts receivable……………….………………………. 42,700 Accounts paya...

Q: Prepare an income statement and a balance sheet from the following scrambled

Prepare an income statement and a balance sheet from the following scrambled list of items. What is the firm’s net working capital and debt ratio? Sales……………………………………………………………………..$550,000 Accumulat...

Q: Interpret the following information regarding Maness Corporation’s free cash flows and financing

Interpret the following information regarding Maness Corporation’s free cash flows and financing cash flows.

Q: Dell Computer Corporation (DELL) has long been recognized for its

Dell Computer Corporation (DELL) has long been recognized for its innovative approach to managing its working capital. Describe how Dell pioneered the management of net working capital to free up reso...

Q: Jack Arnold is a resident of Lubbock, Texas, where he

Jack Arnold is a resident of Lubbock, Texas, where he is a prosperous rancher and businessman. He has also built up a sizable portfolio of common stock, which, he believes, is due to the fact that he...

Q: The following is ABC Inc.’s balance sheet (in thousands

The following is ABC Inc.’s balance sheet (in thousands): Also, sales equal $500, cost of goods sold equals $360, interest payments equal $62, taxes equal $56, and net income equal...

Q: This is a comprehensive project evaluation problem bringing together much

This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a fi nancial consultant to Defense Elec...

Q: Consider a project to supply Detroit with 35,000 tons of

Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $3,200,000 investment in threading equipment to get the project sta...

Q: In Problem 27, suppose you’re confident about your own projections,

In Problem 27, suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw requirement. What is the sensitivity of the project OCF to changes i...

Q: McGilla Golf has decided to sell a new line of

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $750 per set and have a variable cost of $330 per set. The company has spent $150,000 for a marketing study that dete...

Q: In the previous problem, you feel that the values are

In the previous problem, you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of...

Q: The financial information for Laurel Electronics referred to in Problem 3.

The financial information for Laurel Electronics referred to in Problem 3.5 is all at book value. Suppose marking to market reveals that the market value of the firm’s inventory is 20 percent below it...

Q: Based on the financial statements for Tomkovick Golf Company in Problem 3

Based on the financial statements for Tomkovick Golf Company in Problem 3.32, compute the cash flow invested in net working capital and the cash flow invested in long-term assets that you would use in...

Q: Hillman Corporation reported current assets of $3,495,055

Hillman Corporation reported current assets of $3,495,055 for the year ending December 31, 2017 and current assets of $3,103,839 on December 31, 2016. Current liabilities for the firm were $2,867,225...

Q: Merton Shovel Corporation has decided to bid for a contract to supply

Merton Shovel Corporation has decided to bid for a contract to supply shovels to the Honduran Army. The Honduran Army intends to buy 1,000 shovels per year for the next three years. To supply these sh...

Q: Which of the following are relevant cash flows in the evaluation of

Which of the following are relevant cash flows in the evaluation of a proposal to produce a new product? a. Decrease in the cash flows of a substitute product. b. Alternative of leasing an existing bu...

Q: The Whole Foods Market, Inc. balance sheet for the fiscal

The Whole Foods Market, Inc. balance sheet for the fiscal year ending September 25, 2016 included the following: total current assets of $1,975 million, total assets of $6,341 million, total current l...

Q: Eco-Energy Appliances Ltd started operations on 1 January and has

Eco-Energy Appliances Ltd started operations on 1 January and has produced the following forecasts for annual sales revenue: The following additional information is also available: 1.Operating profit...

Q: Apple Inc.—like all other businesses—adjusts accounts prior to

Apple Inc.—like all other businesses—adjusts accounts prior to year-end to get correct amounts for the financial statements. Examine Apple Inc.’s Consolidated Balance Sheets in Appendix A and online i...

Q: This case is based on Under Armour, Inc.’s,

This case is based on Under Armour, Inc.’s, consolidated balance sheets, consolidated statements of income, and Note 2 of its financial statements (Significant Accounting Policies) in Appendix B and onl...

Q: Refer to Apple Inc.’s consolidated financial statements in Appendix A

Refer to Apple Inc.’s consolidated financial statements in Appendix A and online in the filings section of http://www.sec.gov. Requirements 1. Examine the account “Short-term marketable securities” i...

Q: Refer back to Problem 3-64A.Requirements

Refer back to Problem 3-64A. Requirements 1. Use the Granger Services data in Problem 3-64A to prepare the company’s classified balance sheet at January 31, 2016. Show captions for total a...

Q: Refer back to Problem 3-72B.Requirements

Refer back to Problem 3-72B. Requirements 1. Use the Spa View Services data in Problem 3-72B to prepare the company’s classified balance sheet at January 31, 2016. Show captions for total...

Q: Refer to Exercise 3-27A. Requirements 1

Refer to Exercise 3-27A. Requirements 1. Use the data in the partial worksheet to prepare Winwood Production Company’s classified balance sheet at December 31 of the current year. Use the report for...

Q: Refer to Exercise 3-38B. Requirements 1

Refer to Exercise 3-38B. Requirements 1. Use the data in the partial worksheet to prepare Emerson Production Company’s classified balance sheet at December 31 of the current year. Use the report for...

Q: Satterfield Corporation reported the following current accounts at December 31, 2016

Satterfield Corporation reported the following current accounts at December 31, 2016 (amounts in thousands): During January 2017, Satterfield completed these selected transactions: â–&nb...

Q: Irvin Furniture Company has requested that you determine whether the company’s ability

Irvin Furniture Company has requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2016. To ans...

Q: What were the dollar amounts of change and the percentage of each

What were the dollar amounts of change and the percentage of each change in Majestic Mountain Lodge’s net working capital during 2016 and 2015? Is this trend favorable or unfavorable...

Q: DuBois Furniture Company has requested that you determine whether the company’s ability

DuBois Furniture Company has requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2016. To an...

Q: What were the dollar amount of change and the percentage of each

What were the dollar amount of change and the percentage of each change in Blueberry Lane Lodge’s net working capital during 2016 and 2015? Is this trend favorable or unfavorable?...

Q: Klingon Widgets, Inc., purchased new cloaking machinery three years ago

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.1 million. Klingon’s current balance sheet shows net fixe...

Q: In Problem 16, suppose Raines Umbrella Corp. paid out $102,000

In Problem 16, suppose Raines Umbrella Corp. paid out $102,000 in cash dividends. Is this possible? If net capital spending and net working capital were both zero, and if no new stock was issued durin...

Q: Consider the following abbreviated financial statements for Parrothead Enterprises:

Consider the following abbreviated financial statements for Parrothead Enterprises:a. What is owners’ equity for 2017 and 2018?b. What is the change in net working capital for 2018?c...

Q: SDJ, Inc., has net working capital of $2,170, current liabilities

SDJ, Inc., has net working capital of $2,170, current liabilities of $4,590, and inventory of $3,860. What is the current ratio? What is the quick ratio?

Q: Given the information for Kerber’s Tennis Shop, Inc., in Problems

Given the information for Kerber’s Tennis Shop, Inc., in Problems 8 and 9, suppose you also know that the firm’s net capital spending for 2018 was $1,250,000 and that the firm reduced its net working...

Q: In the previous problem, suppose the project requires an initial

In the previous problem, suppose the project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. What...

Q: In the previous problem, suppose the fixed asset actually falls

In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project’s Year 1 net cash flow now? Year 2? Year 3? What...

Q: In the previous problem, suppose the fixed asset actually

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. All the other facts are the same. What is the project’s Year 1 net cash flow n...

Q: Dog Up! Franks is looking at a new sausage system

Dog Up! Franks is looking at a new sausage system with an installed cost of $460,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: In the previous problem, suppose the fixed asset actually qualifies

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Data from Problem 14:Dog Up! Franks is looking at a new sa...

Q: Martin Enterprises needs someone to supply it with 125,000 cartons

Martin Enterprises needs someone to supply it with 125,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It...

Q: Consider a project to supply 100 million postage stamps per

Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $750,000 five years ago; if the...

Q: In the previous problem, suppose you were going to use

In the previous problem, suppose you were going to use a three-year MACRS depreciation schedule for your manufacturing equipment and you could keep working capital investments down to only $25,000 per...

Q: McGilla Golf has decided to sell a new line of

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $845 per set and have a variable cost of $405 per set. The company has spent $150,000 for a marketing study that dete...

Q: In the previous problem, you feel that the values are

In the previous problem, you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? Hint: The price and variable costs for the two existing sets of c...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: In Problem 27, suppose you’re confident about your own projections,

In Problem 27, suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw requirement. What is the sensitivity of the project OCF to changes i...

Q: In the previous problem, suppose the fixed asset actually qualifies

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for P...

Q: Aria Acoustics, Inc. (AAI), projects unit sales for a new

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows:Year ………………………………………………………………………………………….. Unit Sales1 …………………………………………………………………………………………………….....

Q: In Problem 20, McGilla Golf would like to know the

In Problem 20, McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. What is the sensitivity of the NPV to each of these v...

Q: A proposed cost-saving device has an installed cost of $735,000.

A proposed cost-saving device has an installed cost of $735,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial ne...

Q: Use the results of Problem 25 to find the accounting,

Use the results of Problem 25 to find the accounting, cash, and financial break-even quantities for the company in Problem 27.Data from Problem 27:Consider a project to supply Detroit with 30,000 tons...

Q: To solve the bid price problem presented in the text,

To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial breakeven...

Q: Your company has been approached to bid on a contract

Your company has been approached to bid on a contract to sell 4,800 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be...

Q: Consider the following project of Hand Clapper, Inc. The company

Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14...

Q: Conch Republic Electronics is a midsized electronics manufacturer located in

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago...

Q: Consider a project to supply Detroit with 30,000 tons of

Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4.3 million investment in threading equipment to get the project s...

Q: Aria Acoustics, Inc. (AAI), projects unit sales for a new

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows:Year ………………………………………………………………………………………….. Unit Sales1 …………………………………………………………………………………………………….....

Q: In Problem 27, suppose you’re confident about your own projections,

In Problem 27, suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw requirement. What is the sensitivity of the project OCF to changes i...

Q: Consider the following project of Hand Clapper, Inc. The company

Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14...

Q: In Problem 20, McGilla Golf would like to know the

In Problem 20, McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. What is the sensitivity of the NPV to each of these v...

Q: A proposed cost-saving device has an installed cost of $735,000.

A proposed cost-saving device has an installed cost of $735,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial ne...

Q: Conch Republic Electronics is a midsized electronics manufacturer located in

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago...

Q: Use the results of Problem 25 to find the accounting,

Use the results of Problem 25 to find the accounting, cash, and financial break-even quantities for the company in Problem 27.Data from Problem 27:Consider a project to supply Detroit with 30,000 tons...

Q: To solve the bid price problem presented in the text,

To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial breakeven...

Q: Your company has been approached to bid on a contract

Your company has been approached to bid on a contract to sell 4,800 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be...

Q: In the previous problem, suppose the fixed asset actually qualifies

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for P...

Q: Using the following data for Jackson Products Company, answer Parts a

Using the following data for Jackson Products Company, answer Parts a through g: Income Statement for the Year Ended December 31, 2016 Net sales (all on credit) …â€&br...

Q: What are the firm’ s changes in net working capital in year

What are the firm’ s changes in net working capital in year 2?

Q: What is the firm’ s net working capital in year 2?

What is the firm’ s net working capital in year 2?

Q: Jefferson Products Inc. is considering purchasing a new automatic press brake

Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $300,000 including installation and shipping. The machine is expected to generate net cash inflows of $80,000...

Q: Seco Dame Enterprises (SDE) acquired a robotic saw six years

Seco Dame Enterprises (SDE) acquired a robotic saw six years ago at a cost of $10 million. The saw was depreciated to its current book value of $0. Actual salvage value today is estimated to be $2 mil...

Q: The Taylor Mountain Uranium Company currently has annual revenues of $1

The Taylor Mountain Uranium Company currently has annual revenues of $1.2 million and annual expenses exclusive of depreciation of $700,000. Depreciation amounts to $200,000 per year. These figures ar...

Q: Benford Inc. is planning to open a new sporting goods store

Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $200,000 and be deprecia...

Q: The MacCauley Company has sales of $200 million and total expenses

The MacCauley Company has sales of $200 million and total expenses (excluding depreciation) of $130 million. Straight-line depreciation on the company’s assets is $15 million, and the maximum accelera...

Q: Johnson Products is considering purchasing a new milling machine that costs $

Johnson Products is considering purchasing a new milling machine that costs $100,000. The machine’s installation and shipping costs will total $2,500. If accepted, the milling machine project will req...

Q: The Taylor Mountain Uranium Company currently has annual cash revenues of $

The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to re...

Q: A firm has an opportunity to invest in a new device that

A firm has an opportunity to invest in a new device that will replace two of the firm’s older machines. The new device costs $570,000 and requires an additional outlay of $30,000 to cover installation...

Q: Two years ago Agro Inc., purchased an ACE generator that cost

Two years ago Agro Inc., purchased an ACE generator that cost $250,000. Agro had to pay an additional $50,000 for delivery and installation, and the investment in the generator required the firm to in...

Q: Benford Inc. is planning to open a new sporting goods store

Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $200,000 and be deprecia...

Q: Argyl Manufacturing is evaluating the possibility of expanding its operations. This

Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $100,000. A new building will cost $100,000 and will be dep...

Q: Ralph’s Bow Works (RBW) is planning to add a new

Ralph’s Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1 million. It is classified as a seven-y...

Q: Locus Quintatus, Inc., a highly profitable maker of customized chariots

Locus Quintatus, Inc., a highly profitable maker of customized chariots, is planning to introduce a new model shortly. The firm must purchase equipment immediately at a cost of $900,000. Freight and i...

Q: Clyne Industries wants to market its new Slammin Jammin Basketball Goal Set

Clyne Industries wants to market its new Slammin Jammin Basketball Goal Set. To bring this product to the market will require the purchase of equipment costing $650,000. Shipping and installation expe...

Q: Hurley’s Winery is planning to acquire a new grape masher. The

Hurley’s Winery is planning to acquire a new grape masher. The masher will cost $100,000 including shipping and installation and will be depreciated as a seven-year MACRS asset. At the time the masher...

Q: Hayward Enterprises, a successful imaging products firm, is considering expanding

Hayward Enterprises, a successful imaging products firm, is considering expanding into the lucrative laser-engraved self-portrait business. It is expected that this new business will generate first-ye...

Q: First Republic Bancorp is considering the acquisition of a new data processing

First Republic Bancorp is considering the acquisition of a new data processing and management information system. The system, including computer hardware and software, will cost $1 million. Delivery a...

Q: ZeeBancorp is considering the establishment of a contract collection service subsidiary that

ZeeBancorp is considering the establishment of a contract collection service subsidiary that would provide collection services to small and medium-size firms. Compensation would be in the form of a pe...

Q: Consider again the comprehensive example involving Burlington Resources (Table 16.

Consider again the comprehensive example involving Burlington Resources (Table 16.5). In this example, it was assumed that forecasted sales and expected EBIT, as well as the interest rates on short-te...

Q: Wilson Electric Company, a manufacturer of various types of electrical equipment

Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment policy for next year. Projected fixed assets and current liabilities are $...

Q: Reynolds Equipment Company is investigating the use of various combinations of short

Reynolds Equipment Company is investigating the use of various combinations of short-term and long-term debt in financing its assets. Assume that the company has decided to employ $30 million in curre...

Q: Superior Brands Inc. wishes to analyze the joint impact of its

Superior Brands Inc. wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return and risk. The company has $40 million in fixed assets. Also, the...

Q: When bank loan officers are evaluating the creditworthiness of a potential commercial

When bank loan officers are evaluating the creditworthiness of a potential commercial borrower, they often look to the firm’s net working capital balance as an indicator of the firm’s overall liquidit...

Q: As part of its planning for the coming Christmas season, Criswell

As part of its planning for the coming Christmas season, Criswell Motorsports is considering whether to expand its product line that currently consists of skateboards to include gaspowered skateboards...

Q: You are considering adding new elliptical trainers to your firm’s product line

You are considering adding new elliptical trainers to your firm’s product line of fitness equipment, and you feel you can sell 5,000 of these per year for five years (after which time this project is...

Q: Traid Winds Corporation, a firm in the 34 percent marginal tax

Traid Winds Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or discount rate, is considering a new project that involves the introduction of a new...

Q: The Carson Distribution Corporation, a firm in the 34 percent marginal

The Carson Distribution Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or discount rate, is considering a new project that involves the introducti...

Q: The Shome Corporation is considering a new project that involves the introduction

The Shome Corporation is considering a new project that involves the introduction of a new product. The firm in in the 34 percent marginal tax bracket and has a 15 percent required rate of return or d...

Q: Mark McNibble is CFO for McNabb Fabrications, Inc. Mark is

Mark McNibble is CFO for McNabb Fabrications, Inc. Mark is considering a new project that involves the introduction of a new product. McNabb is in the 34 percent marginal tax bracket has a 15 percent...

Q: Biotec Inc. wants to replace its R&D equipment with

Biotec Inc. wants to replace its R&D equipment with new high-tech equipment. The existing equipment was purchased five years ago at a cost of $150,000. At that time, the equipment had an expected life...

Q: 1. Which of the following statements is false? a

1. Which of the following statements is false? a. CCA recapture occurs when the salvage value is greater than the ending UCC for the asset or asset class. b. Capital gains occur when the salvage value...

Q: You have been hired as consultants to XrayGlasses Corporation (XGC).

You have been hired as consultants to XrayGlasses Corporation (XGC). XGC is in the process of deciding whether to invest in a new production facility. The new facility will enable it to produce and se...

Q: KRZ Company ’ s tax rate is 40 percent and the appropriate

KRZ Company ’ s tax rate is 40 percent and the appropriate discount rate is 10 percent. It is considering a project. Each asset class is large and continues after the project terminates. KRZ is not ca...

Q: KRZ Company’s tax rate is 40 percent and the appropriate discount rate

KRZ Company’s tax rate is 40 percent and the appropriate discount rate is 8 percent. It is considering a project. Each asset class is large and continues after the project terminates. KRZ is not capit...

Q: Wells Printing is considering the purchase of a new printing press.

Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $2.2 million. This outlay would be partially offset by the sale of an existing press. The o...

Q: Holliday Manufacturing is considering the replacement of an existing machine. The

Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $1,200,000 and requires installation costs of $150,000. The existing machine can be sold currently f...

Q: Samuels Manufacturing is considering the purchase of a new machine to replace

Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $920,000 and total current liabilities of $640,000. As a...

Q: DuPree Coffee Roasters Inc. wishes to expand and modernize its facilities

DuPree Coffee Roasters Inc. wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell i...

Q: Looner Industries is currently analyzing the purchase of a new machine that

Looner Industries is currently analyzing the purchase of a new machine that costs $160,000 and requires $20,000 in installation costs. Purchase of this machine is expected to result in an increase in...

Q: Russell Industries is considering replacing a fully depreciated machine that has a

Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $200,000 and wi...

Q: Atlantic Drydock is considering replacing an existing hoist with one of two

Atlantic Drydock is considering replacing an existing hoist with one of two newer, more efficient pieces of equipment. The existing hoist is 3 years old, cost $32,000, and is being depreciated under M...

Q: Why is the efficient utilization of net working capital important?

Why is the efficient utilization of net working capital important?

Q: Great Northern Manufacturing presently has net working capital of $100,

Great Northern Manufacturing presently has net working capital of $100,000 and sales of $125,000. It is considering entering into a new project that would increase next year’s sales by $15,000. The pr...

Q: State the characteristics of sound net working capital management.

State the characteristics of sound net working capital management.

Q: How is net working capital calculated?

How is net working capital calculated?

Q: Using the assumptions in part (a) of Problem 5 (

Using the assumptions in part (a) of Problem 5 (assuming there is no cannibalization), a. Calculate Home Net’s net working capital requirements (that is, reproduce Table 8.4 under the assumptions in P...

Q: Arnold Inc. is considering a proposal to manufacture high-end

Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three y...

Q: We R Toys” (WRT) is considering expanding into new

We R Toys” (WRT) is considering expanding into new geographic markets. The expansion will have the same business risk as WRT’s existing assets. The expansion will require an initial investment of $50...

Q: Acort Industries has 10 million shares outstanding and a current share price

Acort Industries has 10 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has ann...

Q: Reproduce Ideko’s balance sheet and statement of cash flows, assuming Ideko’s

Reproduce Ideko’s balance sheet and statement of cash flows, assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the...

Q: Approximately what expected future long-run growth rate would provide the

Approximately what expected future long-run growth rate would provide the same EBITDA multiple in 2010 as Ideko has today (i.e., 9.1)? Assume that the future debt-to-value ratio is held constant at 40...

Q: Using the APV method, estimate the value of Ideko and the

Using the APV method, estimate the value of Ideko and the NPV of the deal using the continuation value you calculated in Problem 13 and the unlevered cost of capital estimate in Section 19.4. Assume t...

Q: Under the assumptions that Ideko’s market share will increase by 0.

Under the assumptions that Ideko’s market share will increase by 0.5% per year and that the forecasts in Table 19.8 remain the same, calculate Ideko’s working capit...

Q: Under the assumptions that Ideko’s market share will increase by 0.

Under the assumptions that Ideko’s market share will increase by 0.5% per year but that the projected improvements in net working capital do not transpire (so the numbers in Table 19...

Q: Forecast Ideko’s free cash flow (reproduce Table 19.10),

Forecast Ideko’s free cash flow (reproduce Table 19.10), assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will...

Q: The Greek Connection had sales of $32 million in 2015,

The Greek Connection had sales of $32 million in 2015, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below: a. Calculate The Greek Connectionâ€&...

Q: 1. Which of the following describes a firm’s working capital?

1. Which of the following describes a firm’s working capital? a. The firm’s operating assets such as trucks, airplanes, and machinery b. The same as stockholders’ equity c. The money needed to star...

Q: 1. True or False? Net working capital changes will affect

1. True or False? Net working capital changes will affect a project’s operating cash flow estimates. a. True because the project may affect levels of inventory or accounts receivable. b. True because...

Q: Preston Industries' current sales volume is $100 million a year.

Preston Industries' current sales volume is $100 million a year. Preston is examining the advantages of EDI (electronic data interchange). The technology will allow Preston to electronically communica...

Q: The No-Shoplift Security Company is interested in bidding on a

The No-Shoplift Security Company is interested in bidding on a contract to provide a new security system for a large department store chain. The new security system would be phased into 10 stores per...

Q: A project is estimated to generate sales revenue of $10 million

A project is estimated to generate sales revenue of $10 million with expenses of $9 million. No change in net working capital is expected. Marginal profits will be taxed at a 35% rate. If the project'...

Q: Compute operating cash flows for the following: a. A

Compute operating cash flows for the following: a. A project that is expected to have sales of $10,000, expenses of $5,000, depreciation of $200, an investment of $50 in net working capital and a 20 p...

Q: This problem uses the financial statements for the Genatron Manufacturing Corporation for

This problem uses the financial statements for the Genatron Manufacturing Corporation for the years 2017 and 2016 from Problem 6. a. Calculate Genatron’s dollar amount of net working capital in each...

Q: What is meant by net working capital? Briefly describe the financing

What is meant by net working capital? Briefly describe the financing implications when net working capital is positive.

Q: Why is the change in net working capital included in operating cash

Why is the change in net working capital included in operating cash flow estimates?

Q: The Ultra Cable Corporation, headquartered in Chicago, Illinois, had

The Ultra Cable Corporation, headquartered in Chicago, Illinois, had thus far enjoyed a fairly steady run-up in revenues and profits. Two years ago, it hired Ron Swenson away from the competition to a...

Q: Vasudevan Inc. recently reported operating income of $2.8

Vasudevan Inc. recently reported operating income of $2.8 million, depreciation of $1.2 million, and had a tax rate of 40%. The firm’s expenditures on fixed assets in net working capital totaled $0.7...

Q: Why does it make sense to finance net working capital separately from

Why does it make sense to finance net working capital separately from fixed assets?

Q: You're a supervisor in the treasury department of Big Corp. Recently

You're a supervisor in the treasury department of Big Corp. Recently there's been increasing concern about the firm's rising interest costs. Fred Eyeshade is an analyst in your group who transferred...

Q: The Langley Corporation is in a seasonal business. It requires a

The Langley Corporation is in a seasonal business. It requires a permanent base of net working capital of $10 million all year long, but that requirement temporarily increases to $20 million during a...

Q: The Paxton Homes Co. is a successful builder of moderate to

The Paxton Homes Co. is a successful builder of moderate to high-priced houses. The firm is currently considering an expansion into light commercial construction in which it would build shopping cent...

Q: The Dancing Goat is a small coffee operation with ten cafés located

The Dancing Goat is a small coffee operation with ten cafés located around Melbourne. Each has a manager and up to five full-time employees to cover the 7.30 am to 4.30 pm, Monday to Satu...

Q: Advantage Tennis Coaching (ATC) in Brisbane offers coaching for junior

Advantage Tennis Coaching (ATC) in Brisbane offers coaching for junior, elite and mature tennis players. Nicholas Cash, the sole proprietor, has identified that the business cycle will be seasonal, wi...

Q: Differentiate between working capital and net working capital. Provide examples of

Differentiate between working capital and net working capital. Provide examples of both current asset and current liability accounts that would be taken into consideration to determine net working cap...

Q: Explain the advantages and disadvantages of using factoring or discounting.

Explain the advantages and disadvantages of using factoring or discounting. (b) Discuss what type of businesses would benefit from floor-plan finance. (c) Graham Ltd is a profitable manufacturing comp...

Q: What were the dollar and percentage changes in Rozzi’s Gift Shop’s net

What were the dollar and percentage changes in Rozzi’s Gift Shop’s net working capital during 2017 and 2018? Is this trend favorable or unfavorable?

Q: Based on the data below, what were the dollar and percentage

Based on the data below, what were the dollar and percentage changes in Fessler’s Fine Furnishings, Inc.’s net working capital during 2017 and 2018? Is this trend f...

Q: In Problem 17, suppose Raines Umbrella Corp. paid out $

In Problem 17, suppose Raines Umbrella Corp. paid out $128,000 in cash dividends. Is this possible? If net capital spending and net working capital were both zero, and if no new stock was issued durin...

Q: Consider the following abbreviated financial statements for Parrothead Enterprises:

Consider the following abbreviated financial statements for Parrothead Enterprises: a. What is owners’ equity for 2020 and 2021? b. What is the change in net working capital for 2...

Q: Given the information for Osaka’s Tennis Shop, Inc., in Problems

Given the information for Osaka’s Tennis Shop, Inc., in Problems 9 and 10, suppose you also know that the firm’s net capital spending for 2021 was $1.5 million and that the firm reduced its net workin...

Q: SDJ, Inc., has net working capital of $2,

SDJ, Inc., has net working capital of $2,630, current liabilities of $5,970, and inventory of $3,860. What is the current ratio? What is the quick ratio?

Q: Klingon Widgets, Inc., purchased new cloaking machinery three years ago

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.4 million. Klingon’s current balance sheet shows net fixe...

Q: Martin Enterprises needs someone to supply it with 110,000 cartons

Martin Enterprises needs someone to supply it with 110,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It...

Q: Consider a project to supply 100 million postage stamps per year to

Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $750,000 five years ago; if the...

Q: In the previous problem, suppose you were going to use a

In the previous problem, suppose you were going to use a three-year MACRS depreciation schedule for your manufacturing equipment and you could keep working capital investments down to only $25,000 per...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: In the previous problem, suppose the fixed asset actually qualifies for

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV? Problem 34: You have been hired as a consultant for Pri...

Q: Aria Acoustics, Inc. (AAI), projects unit sales for

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year ………………………….. Unit Sales 1 …………………………………… 71,000 2 …………………………………. 84,000 3 …………………………………...

Q: A proposed cost-saving device has an installed cost of $

A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial ne...

Q: Your company has been approached to bid on a contract to sell

Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be...

Q: McGilla Golf has decided to sell a new line of golf clubs

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $815 per set and have a variable cost of $365 per set. The company has spent $150,000 for a marketing study that dete...

Q: In the previous problem, you feel that the values are accurate

In the previous problem, you feel that the values are accurate to within only ± 10 percent. What are the best-case and worst-case NPVs? Problem 20: McGilla Golf has decided to sell a new line of golf...

Q: In Problem 20, McGilla Golf would like to know the sensitivity

In Problem 20, McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. What is the sensitivity of the NPV to each of these v...

Q: Consider a project to supply Detroit with 20,000 tons of

Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3.1 million investment in threading equipment to get the project s...

Q: In Problem 27, suppose you’re confident about your own projections,

In Problem 27, suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw requirement. What is the sensitivity of the project OCF to changes i...

Q: Use the results of Problem 25 to find the accounting, cash

Use the results of Problem 25 to find the accounting, cash, and financial break-even quantities for the company in Problem 27. Problem 25: This problem concerns the effect of taxes on the various bre...

Q: Use the results of Problem 26 to find the degree of operating

Use the results of Problem 26 to find the degree of operating leverage for the company in Problem 27 at the base-case output level of 20,000 tons. How does this number compare to the sensitivity figur...

Q: In the previous problem, suppose the project requires an initial investment

In the previous problem, suppose the project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. What...

Q: In the previous problem, suppose the fixed asset actually falls into

In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project’s Year 1 net cash flow now? Year 2? Year 3? What...

Q: Dog Up! Franks is looking at a new sausage system with

Dog Up! Franks is looking at a new sausage system with an installed cost of $385,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: In the previous problem, suppose the fixed asset actually qualifies for

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV? Problem 14: Dog Up! Franks is looking at a new sausage s...

Q: This is a comprehensive project evaluation problem bringing together much of what

This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a financial consultant to Defense Elect...

Q: Consider the following project of Hand Clapper, Inc. The company

Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $12...

Q: This exercise parallels the machine purchase decision for the Mendoza Company discussed

This exercise parallels the machine purchase decision for the Mendoza Company discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business....

Q: Rockyford Company must replace some machinery that has zero book value and

Rockyford Company must replace some machinery that has zero book value and a current market value of $1,800. One possibility is to invest in new machinery costing $40,000. This new machinery would pro...

Q: Eagle Products’ EBIT is $300, its tax rate is 21

Eagle Products’ EBIT is $300, its tax rate is 21%, depreciation is $20, capital expenditures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?

Q: The SoftTec Products Company is a successful, small, rapidly growing

The SoftTec Products Company is a successful, small, rapidly growing, closely held corporation. The equity owners are considering selling the firm to an outside buyer and want to estimate the value of...

Q: Wok Yow Imports, Inc., is a rapidly growing, closely

Wok Yow Imports, Inc., is a rapidly growing, closely held corporation that imports and sells Asian style furniture and accessories at several retail outlets. The equity owners are considering selling...

Q: Table 29.18 shows the 2019 financial statements for the Executive

Table 29.18 shows the 2019 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investments. The company plan...

Q: True or false? a. Companies with negative net working

True or false? a. Companies with negative net working capital are usually in financial trouble. b. Principal payments on long-term debt are shown as current liabilities if due within the next 12 month...

Q: The following table tracks the main components of working capital over the

The following table tracks the main components of working capital over the life of a four-year project. Calculate net working capital and the cash inflows and outflows due to investment in working cap...

Q: Go to the Excel spreadsheet versions of Table 6.2 and

Go to the Excel spreadsheet versions of Table 6.2 and answer the following questions. a. New engineering estimates raise the possibility that capital investment will be more than $12 million, perhaps...

Q: You have just been hired by Internal Business Machines Corporation (IBM

You have just been hired by Internal Business Machines Corporation (IBM) in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type o...

Q: As a new analyst for a large brokerage firm, you are

As a new analyst for a large brokerage firm, you are anxious to demonstrate the skills you learned in your MBA program and prove that you are worth your attractive salary. Your first assignment is to...

Q: Eagle Products’ EBIT is $300, its tax rate is 21

Eagle Products’ EBIT is $300, its tax rate is 21%, depreciation is $20, capital expenditures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?

Q: Refer to Exercise 3-26A. Requirements:

Refer to Exercise 3-26A. Requirements: 1. Use the data in the partial worksheet to prepare Crawford Production Company’s classified balance sheet at December 31 of the current year. Use the report fo...

Q: Refer to Exercise 3-37B. Requirements:

Refer to Exercise 3-37B. Requirements: 1. Use the data in the partial worksheet to prepare Lauer Production Company’s classified balance sheet at December 31 of the current year. Use the report for...

Q: Refer back to Problem 3-63A. Requirements:

Refer back to Problem 3-63A. Requirements: 1. Use the Valley Services data in Problem 3-63A to prepare the company’s classified balance sheet at January 31, 2018. 2. Calculate Valley’s net working c...

Q: Refer back to Problem 3-71B. Requirements :

Refer back to Problem 3-71B. Requirements : 1. Use the Meadowbrook Services data in Problem 3-71B to prepare the company’s classified balance sheet at January 31, 2018. 2. Calculate Meadowbrook’s ne...

Q: Saginaw Corporation reported the following current accounts at December 31, 2018

Saginaw Corporation reported the following current accounts at December 31, 2018 (amounts in thousands): During January 2019, Saginaw completed these selected transactions: Sold services on account,...

Q: The following information is for Nature Lodge. What were the dollar

The following information is for Nature Lodge. What were the dollar amounts of change and the percentage of each change in Nature Lodge’s net working capital during 2018 and 2017? I...

Q: The following information is for Leary Lodge. What were the dollar

The following information is for Leary Lodge. What were the dollar amount of change and the percentage of each change in Leary Lodge’s net working capital during 2018 and 2017? Is t...

Q: To follow are The Cheesecake Factory Incorporated’s financial statements from its 2016

To follow are The Cheesecake Factory Incorporated’s financial statements from its 2016 Form 10-K. The preceding financial statements have been condensed and adapted for educational...

Q: Assume that interest rates for most maturities are unusually high. Also

Assume that interest rates for most maturities are unusually high. Also assume that the net working capital (defined as current assets minus current liabilities) levels of many corporations are relati...

Q: Define net working capital. Explain how increasing the amount of trade

Define net working capital. Explain how increasing the amount of trade credit can reduce the net working capital for a company.

Q: The following balance sheet data are reported for Beaver, Inc.,

The following balance sheet data are reported for Beaver, Inc., at May 31, 2019. Assume that on June 1, 2019. only the following two transaction occurred. June 1 Purchased additional equipment costing...

Q: Review the following selected income statement and balance sheet data from the

Review the following selected income statement and balance sheet data from the fiscal years ending in 20 17 and 2018. REQUIRED a. Compare and discuss how these companies finance their operations. b. W...

Q: Selected balance sheet amounts for Alibaba Group Holding Ltd, a China

Selected balance sheet amounts for Alibaba Group Holding Ltd, a China-based online and mobile commerce company, for three recent fiscal years ending March 31 follow: REQUIRED a. Compute the missing ba...