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    This document contains an assignment for a business finance course consisting of 5 questions. Question 1 involves calculating order quantities, inventory levels, and costs for a bread company. Question 2 involves calculating days sales outstanding and average receivables for a company with different payment terms. Question 3 involves calculating inventory metrics like economic order quantity and total costs for a garden center. Question 4 involves preparing a cash budget to forecast cash needs for a coin shop over 3 months. Question 5 involves calculating net present value and change in firm value from adopting a new credit policy.

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    Assignment # Topic

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    31 views2 pages
    This document contains an assignment for a business finance course consisting of 5 questions. Question 1 involves calculating order quantities, inventory levels, and costs for a bread company. Question 2 involves calculating days sales outstanding and average receivables for a company with different payment terms. Question 3 involves calculating inventory metrics like economic order quantity and total costs for a garden center. Question 4 involves preparing a cash budget to forecast cash needs for a coin shop over 3 months. Question 5 involves calculating net present value and change in firm value from adopting a new credit policy.

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    This document contains an assignment for a business finance course consisting of 5 questions. Question 1 involves calculating order quantities, inventory levels, and costs for a bread company. Question 2 involves calculating days sales outstanding and average receivables for a company with different payment terms. Question 3 involves calculating inventory metrics like economic order quantity and total costs for a garden center. Question 4 involves preparing a cash budget to forecast cash needs for a coin shop over 3 months. Question 5 involves calculating net present value and change in firm value from adopting a new credit policy.

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    © All Rights Reserved
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    31 views2 pages

    Assignment # Topic

    Uploaded by

    ashikur rahman
    This document contains an assignment for a business finance course consisting of 5 questions. Question 1 involves calculating order quantities, inventory levels, and costs for a bread company. Question 2 involves calculating days sales outstanding and average receivables for a company with different payment terms. Question 3 involves calculating inventory metrics like economic order quantity and total costs for a garden center. Question 4 involves preparing a cash budget to forecast cash needs for a coin shop over 3 months. Question 5 involves calculating net present value and change in firm value from adopting a new credit policy.

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    of 2

    East West University

    Department of Business Administration


    Summer 2021
    FIN201 - Business Finance
    Section – 05
    Assignment # 3

    1. The Homemade Bread Company buys and then sells (as bread) 2.6 million bushels of wheat annually.
    The wheat must be purchased in multiples of 2,000 bushels. Ordering costs are $5,000 per order.
    Annual carrying costs are 2 percent of the purchase price of $5 per bushel. The delivery time is six
    weeks. (3 marks)
    a. What is the EOQ?
    b. At what inventory level should an order be placed?
    c. What are the total inventory costs?

    2. Morrissey Industries sells on terms of 3/10, net 30. Total sales for the year are $900,000. Forty percent
    of the customers pay on Day 10 and take discounts; the other 60 percent pay, on average, 40 days
    after their purchases. (3 marks)
    a. What is the days sales outstanding?
    b. What is the average amount of receivables?
    c. What would happen to average receivables if Morrissey tightened its collection policy with the
    result that all nondiscount customers paid on Day 30?

    3. Green Thumb Garden Centers sells 240,000 bags of lawn fertilizer annually. The optimal safety stock
    (which is on hand initially) is 1,200 bags. Each bag costs Green Thumb $4, inventory carrying costs are
    20 percent, and the cost of placing an order with its supplier is $25. (5 marks)
    a. What is the economic ordering quantity (EOQ)?
    b. What is the total inventory cost at the EOQ level?
    c. What is the maximum inventory of fertilizer?
    d. What will Green Thumb’s average inventory be?
    e. How often must the company order?

    4. Patricia Smith recently leased space in the Southside Mall and opened a new business, Smith’s Coin
    Shop. Business has been good, but Smith frequently runs out of cash. This has necessitated late
    payment on certain orders, which in turn is beginning to cause a problem with suppliers. Smith plans to
    borrow from the bank to have cash ready as needed, but first she needs a forecast of just how much
    Page 1 of 2
    she must borrow. Accordingly, she has asked you to prepare a cash budget for the critical period
    around Christmas, when needs will be especially high. Sales are made on a cash basis only. Smith’s
    purchases must be paid for during the month following the purchase. Smith pays herself a salary of
    $4,800 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of
    $12,000 in December. The current cash on hand (on December 1) is $400, but Smith has agreed to
    maintain an average bank balance of $6,000—this is her target cash balance. (Disregard till cash, which
    is insignificant because Smith keeps only a small amount on hand to lessen the chances of robbery.)

    The estimated sales and purchases for December, January, and February are shown here.
    Purchases during November amounted to $140,000. (5 marks)

    Month Sales Purchases


    December $ 160,000 $ 40,000
    January 40,000 40,000
    February 60,000 40,000

    a. Prepare a cash budget for December, January, and February.

    5. The following data apply to LafargeHolcim Limited. LafargeHolcim’s required rate of return equals 9
    percent (annually). (4 marks)

    Cash flows
    Days Existing Credit Proposed
    Policy Credit Policy
    0 ($3 000) ($ 3000)
    15 2500 2500
    55 0 9000
    67 9775 0

    a. Calculate Net Present Value (NPV) for both policy.


    b. Show the impact on firm’s value if proposal is adopted (i.e., calculate change in NPV on
    a daily basis and change in value)
    c. Interpret your answer.

    Page 2 of 2

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