Chapters 16 and 17 of Financial Management: Theory and Practice

Complete the following problem sets from the “Problems” section in Chapters 16 and 17 of Financial Management: Theory and Practice.

  1. Chapter 16: 16-1, 16-2, 16-4, and 16-5
  2. Chapter 17: 17-1, 17-2, 17-3, and 17-4

 

CHAPTER 16

(16-1) Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of

  1. The company is now adopting a new inventory system. If the new system is able toreduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 5while maintaining the same level of sales, how much cash will be freed up?

 

(16-2) Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company’s average accounts receivable?

 

(16-4) A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinelytakes 60 days to pay its bills. (Because the retailer is an important customer, suppliersallow the firm to stretch its credit terms.) What is the retailer’s effective cost of tradecredit?

 

(16-5) A chain of appliance stores, APP Corporation, purchases inventory with a net price of$500,000 each day. The company purchases the inventory under the credit terms of 2/15,net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is theaverage accounts payable for APP?

CHAPTER 17

(17-1) At today’s spot exchange rates 1 U.S. dollar can be exchanged for 9 Mexican pesos or for

111.23 Japanese yen. You have pesos that you would like to exchange for yen. What is thecross rate between the yen and the peso; that is, how many yen would you receive forevery peso exchanged?

 

(17-2) The nominal yield on 6-month T-bills is 7%, while default-free Japanese bonds thatmature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yenequals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate?

 

(17-3) A computer costs $500 in the United States. The same model costs 550 euros in France.

If purchasing power parity holds, what is the spot exchange rate between the euro andthe dollar?

(17-4) If euros sell for $1.50 (U.S.) per euro, what should dollars sell for in euros per dollar?

 

 

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