1. The Toledo Technology Company is analyzing a proposed project. The company expects to sell 10,000 units, give or take 10 percent. The expected variable cost per unit is $6 and the expected fixed cost is $29,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $25,000. The tax rate is 34 percent. The sale price is estimated at $13 per unit, give or take 6 percent. What is the expected net income under the best case scenario?
2. Alpha Investment Corporation., a Saskatchewan-based hedge fund, is planning to build a sports centre in Swift Current. The group spends $1,200,000 to buy land and to develop the parking lot. After completing these steps they terminate the project when they learn that another facility is going to be built close by. What option has the hedge fund exercised? Three years later, they still own the land and improvements. How should they value these things if they decide at that time to complete the sports centre as originally planned?
3. The Melville Manufacturing Company has an inventory period of 58 days, an accounts payable period of 45 days, and an accounts receivable period of 25 days. How long is the company’s cash cycle? Generally speaking, what sorts of things could happen whereby this company might see a decrease in its cash cycle?
4. The Cypress Hills Furniture Corporation has a beginning cash balance of $482 on February 1st. The firm has projected sales of $550 in January, $700 in February, and $800 in March. The cost of goods sold is equal to 50% of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 15 days. The firm has monthly cash expenses of $200. What is the projected ending cash balance at the end of February? Assume that every month has 30 days.
5. Many organizations are now using online banking, payment apps, and other electronic means for making and receiving payments. What are the implications of this societal change on float management?
6. A company based in Montreal, Quebec has a cash balance of $35,000 as of June 1. During the month they paid $18,000 on account, $13,000 for wages, and $1,000 for other expense items. The company maintains a minimum cash balance of $10,000. Sales for the firm for April, May, and June are $15,000, $22,000, and $18,750, respectively. The company collects 50% of sales in the month of sale, 30% in the following month, and 20% in the second month following the month of sale. What is the cash surplus or deficit as of June 30, relative to the company’s required minimum cash balance?
7. Serena’s co-op placement is with a consulting company in Winnipeg, in the treasury department. The job has been interesting and has kept Serena quite busy. She thought she was really starting to understand how things worked, but recently a senior finance department staff member commented that “It is quite important for our company to maintain a minimum cash balance of approximately $250,000 at all times. Often the cost of holding this much cash is greater than the return generated by the funds. Still, we have to do this.” Serena was puzzled by the comment. How would you explain this to her?
8. The Jabez Corporation has asked for credit with your firm. Jabez has not done business with your firm previously, but the company’s operations manager has assured you that they will continue to do regular business with your firm. The company’s purchasing manager would like to buy some equipment today at a cost of $475,000, with 30 days credit. Your variable cost for that equipment is $460,000 and your monthly interest rate is 1.25 percent. Your research has shown that the probability of default for Jabez is 25 percent, which makes you a little reluctant to work with the company. What is the net present value of this decision?
