Introduction to Finance: Harvesting the Money Tree

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7) The problem in stretching out the maturity of marketable securities is that
A. long-term rates higher than short-term rates.
B. interest rates are generally lower.
C. you are legally locked in until the maturity date.
D. there is greater possibility of loss.



I think B

  • Introduction to Finance: Harvesting the Money Tree -

    D. there is greater possibility of loss

  • Introduction to Finance: Harvesting the Money Tree -

    C. It is the interest rate that is "locked in"; you can't get your money back until the bond matures, unless you sell the bond to someone else. Long term bonds values decrease more in value when the short-term interest rate rises.

  • Introduction to Finance: Harvesting the Money Tree -

    You are an upper-level manager in a company. Which financial ratios would you consider most useful? Would these ratios be different than the ones you would consider useful as an investor? Why or why not?

  • Introduction to Finance: Harvesting the Money Tree -

    You are an upper-level manager in a company. Which financial ratios would you consider most useful? Would these ratios be different than the ones you would consider useful as an investor? Why or why not?

  • Introduction to Finance -

    1 Given the following data for Gary and Co (Millions of Dollars):

    Balance Sheet Dec 31 200X

    Cash $45
    Accounts Payables $45
    Marketable Securities 33
    Notes Payables 45
    Receivables 66
    Other Current liabilities 21
    Inventory 159
    Total Current liabilities $111
    Total Current Assets 303
    Long term debt 24
    Total liabilities $135
    Net Fixed Assets 147
    Common Stock 114
    Total Assets $450
    Retained Earnings 201
    Total stockholders’ equity 315
    Total liabilities and equity 450

    Income Statement Year 200X

    Net sales $795
    Cost of goods sold 660
    Gross profit 135
    Selling expenses 73.5
    Depreciation 12
    EBIT 49.5
    Interest expense 4.5
    EBT 45
    Taxes (40% 18
    Net Income 27

    Calculate the following ratios:

    Ratio Industry Average
    Current ratio
    Times interest earned
    DSO
    Inventory Turnover
    Sales/Total Assets
    Profit margin on sales
    Return on Total Assets
    Return on Common Equity

    2 Given the compressed version of balance sheet and income statement, estimate the amount of external financing needed to increase sales by 20% next year. (use percentage of sales method)
    (Dividend payout is 50%)
    Balance Sheet (End of the Year)
    Assets $2,000 Debt $1000
    Equity $1000
    Total $2000 $2000

    Income Statement
    Sales $1000
    Costs 800
    Net Income 200
    3 A firm has outstanding receivables of $125,000. Its credit terms are net 30. If during the past three months credit sales are $100,000, $105,000, and $60,000, how many days of sales are outstanding as receivables?

    4 Given the following data, develop weekly cash budget. Minimum cash required is $50 and the beginning cash balance is $100.

    Week 1 Week 2 Week 3
    Cash Receipts $1,000 $1,100 $900
    Cash Disbursements (850) (1450) (1000)



    5 Given the following data:
    Days inventory = 103 days, Days receivables = 41 days, and Days payables = 81 days
    Calculate the cash conversion cycle and operating cycle.

    6 Calculate the cost of trade credit given terms of 3/20 net 60.

    7 A firm issues $1,000,000 of commercial paper with a maturity of 60 days and a discount rate of 5%. The paper is sold through a dealer who charges 0.25%. What is the effective cost of issuing the commercial paper?

  • Introduction to Finance: Harvesting the Money Tree -

    4 Given the following data, develop weekly cash budget. Minimum cash required is $50 and the beginning cash balance is $100.

  • Introduction to Finance: Harvesting the Money Tree -

    You are an upper-level manager in a company. Which financial ratios would you consider most useful? Would these ratios be different than the ones you would consider useful as an investor? Why or why not?

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