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Liberty University BUSI 320 connect homework 3 correct answers 100% guaranteed with explanations
Sharpe Knife Company expects sales next year to be $1,720,000 if the economy is strong, $910,000 if the economy is steady, and
$720,000 if the economy is weak. Mr. Sharpe believes there is a 10 percent probability the economy will be strong, a 45 percent probability
of a steady economy, and a 45 percent probability of a weak economy.
What is the expected level of sales for the next year?
Antivirus Inc. expects its sales next year to be $2,200,000. Inventory and accounts receivable will increase by $450,000 to accommodate
this sales level. The company has a steady profit margin of 9 percent with a 20 percent dividend payout.
Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are
anticipated as follows:
What is the ending inventory at the end of each month? Compare the unit sales to the units produced and keep a running total
If the inventory costs $12 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the
total for the four months?
Biochemical Corp. requires $580,000 in financing over the next three years. The firm can borrow the funds for three years at 12.90
percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay
9.75 percent interest in the first year, 14.50 percent interest in the second year, and 10.90 percent interest in the third year. Assume
interest is paid in full at the end of each year
Determine the total interest cost under each plan
Which plan is less costly
Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $440,000. The
company can borrow $440,000 for three years at 14 percent annual interest or for one year at 12 percent annual interest. Assume
interest is paid in full at the end of each year.
How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized
and the loan is rolled over (reborrowed) each year at the same 12 percent rate? Compare this to the 14 percent three-year loan
What if interest rates on the 12 percent loan go up to 18 percent in year 2 and 21 percent in year 3? What would be the total interest
cost compared to the 14 percent, three-year loan?
Assume that Hogan Surgical Instruments Co. has $4,100,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a
return of 14 percent, but with a high-liquidity plan, the return will be 10 percent. If the firm goes with a short-term financing plan, the
financing costs on the $4,100,000 will be 6 percent, and with a long-term financing plan, the financing costs on the $4,100,000 will be 8
percent
Compute the anticipated return after financing costs with the most aggressive asset-financing mix
Compute the anticipated return after financing costs with the most conservative asset-financing mix
Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.
Assume that Atlas Sporting Goods Inc. has $1,010,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of
18 percent, but with a high-liquidity plan the return will be 15 percent. If the firm goes with a short-term financing plan, the financing
costs on the $1,010,000 will be 12 percent, and with a long-term financing plan, the financing costs on the $1,010,000 will be 14 percent
Compute the anticipated return after financing costs with the most aggressive asset-financing mix
Compute the anticipated return after financing costs with the most conservative asset-financing mix
Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.
If the firm used the most aggressive asset-financing mix described in part a and had the anticipated return you computed for part a,
what would earnings per share be if the tax rate on the anticipated return was 30 percent and there were 20,000 shares outstanding
Short-term rates are 12 percent. Long-term rates are 17 percent. Earnings before interest and taxes are $1,200,000. The tax rate is 40
percent
Assume the term structure of interest rates becomes inverted, with short-term rates going to 14 percent and long-term rates 4
percentage points lower than short-term rates. Earnings before interest and taxes are $1,190,000. The tax rate is 30 percent
If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what
will earnings after taxes be?
Guardian Inc. is trying to develop an asset-financing plan. The firm has $440,000 in temporary current assets and $340,000 in
permanent current assets. Guardian also has $540,000 in fixed assets. Assume a tax rate of 30 percent
Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 60 percent of assets financed by
long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current
interest rate is 11 percent on long-term funds and 6 percent on short-term financing. Compute the annual interest payments under each
plan
Given that Guardian’s earnings before interest and taxes are $320,000, calculate earnings after taxes for each of your alternatives.
What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-
term interest rates were reversed?
Lear Inc. has $900,000 in current assets, $400,000 of which are considered permanent current assets. In addition, the firm has
$700,000 invested in fixed assets
Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance
will be financed with short-term financing, which currently costs 5 percent. Lear’s earnings before interest and taxes are $300,000.
Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent
As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with
long-term financing and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and
taxes will be $300,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with
maturities of two, three, and four years based on the following data
Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows
Compute total dollar interest payments for the six months
Compute the total dollar interest payments if long-term financing at 12 percent had been utilized throughout the six months
If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or
smaller than with the short-term financing plan?
Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows:
What long-term interest rate would represent a break-even point between using short-term financing and long-term financing
Bombs Away Video Games Corporation has forecasted the following monthly sales
Construct a monthly production and inventory schedule in units. Beginning inventory in January is 41,000 units.
Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000
Prepare a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in
which they occur. Other cash payments, besides those for production costs, are $61,000 per month

Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments
schedule from part c. The beginning cash balance is $5,000, which is also the minimum desired
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through
the establishment of local collection centers around the country, she can speed up the collection of payments by two days. Furthermore,
the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day
without affecting suppliers. The bank has a remote disbursement center in Florida
If Neon Light Company has $3.15 million per day in collections and $1.23 million per day in disbursements, how many dollars will the
cash management system free up
If Neon Light Company can earn 8 percent per annum on freed-up funds, how much will the income be?
If the total cost of the new system is $490,000, should it be implemented
Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in
2010 it held 400,000 reals in Brazil worth 330,000 dollars. It drew 14 percent interest, but the Brazilian real declined 28 percent against
the dollar
What is the value of its holdings, based on U.S. dollars, at year-end
What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 11 percent interest and the real went up by 15
percent against the dollar?
Mervyn’s Fine Fashions has an average collection period of 35 days. The accounts receivable balance is $56,000
What is the value of its annual credit sales
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
Calculate the percentage of amount due for each month
If the firm had $1,452,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should
be based on a 120-day period
If the firm likes to see its bills collected in 31 days, should it be satisfied with the average collection period
Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk
anticipates sales of 84,500 units per year, an ordering cost of $4 per order, and carrying costs of $1.60 per unit
What is the economic ordering quantity
What will the average inventory be?
What is the total cost of ordering and carrying inventory
Diagnostic Supplies has expected sales of 120,000 units per year, carrying costs of $6 per unit, and an ordering cost of $9 per order.
What is the economic ordering quantity
What will the new average inventory be
Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and
aftertax costs would decline by $31,900, but inventory would increase by $290,000. Wisconsin Snowmobile would have to finance the
extra inventory at a cost of 12.5 percent
Determine the extra cost or savings of switching over to level production
Should the company go ahead and switch to level production
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by
$146,000 if credit is extended to these new customers. Of the new accounts receivable generated, 8 percent will prove to be
uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 72 percent of sales. The firm
is in the 10 percent tax bracket.
Compute the incremental income after taxes
What will Johnson’s incremental return on sales be if these new credit customers are accepted
Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 8 percent of the new accounts will
be uncollectible. Collection costs are 3 percent of new sales, production and selling costs are 80 percent, and the accounts receivable
turnover is five times. Assume income taxes of 35 percent and an increase in sales of $82,000. No other asset buildup will be required
to service the new accounts
What additional investment in accounts receivable is needed to support this sales expansion
What would be the total incremental investment in accounts receivable and inventory needed to support a $82,000 increase in sales
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $324,000 in
additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $17,000 in additional collection expense.
Production and marketing costs represent 72 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of
four times. No other asset buildup will be required to service the new customers. The firm has a 8 percent desired return
Calculate the incremental income after taxes
Calculate the incremental income after taxes if 15 percent of the new sales prove to be uncollectible
Dome Metals has credit sales of $360,000 yearly with credit terms of net 45 days, which is also the average collection period. Dome
does not offer a discount for early payment, so its customers take the full 45 days to pay
What is the average receivables balance
What is the receivables turnover
Dome Metals has credit sales of $216,000 yearly with credit terms of net 45 days, which is also the average collection period. Assume
the firm adopts new credit terms of 2/15, net 45 and all customers pay on the last day of the discount period. Any reduction in accounts
receivable will be used to reduce the firm's bank loan which costs 9 percent. The new credit terms will increase sales by 10 percent
because the discount will make the firm's price competitive
If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new

1.
award:
1 out of
1.00 point
Sharpe Knife Company expects sales next year to be $1,720,000 if the economy is strong, $910,000 if
the economy is steady, and $720,000 if the economy is weak. Mr. Sharpe believes there is a 10 percent
probability the economy will be strong, a 45 percent probability of a steady economy, and a 45 percent
probability of a weak economy.
What is the expected level of sales for the next year?
Expected level of sales $ 905,500 ± 0.1%
rev: 03_07_2014_QC_46438
Explanation:
Sharpe Knife Company
State of
Economy Sales Probability
Expected
Outcome
Strong $1,720,000 .10 $ 172,000
Steady 910,000 .45 409,500
Weak 720,000 .45 324,000
Expected level of sales = $ 905,500
2.
award:
1 out of
1.00 point
Antivirus Inc. expects its sales next year to be $2,200,000. Inventory and accounts receivable will
increase by $450,000 to accommodate this sales level. The company has a steady profit margin of 9
percent with a 20 percent dividend payout.
How much external financing will the firm have to seek? Assume there is no increase in liabilities other
than that which will occur with the external financing.
External funds needed $ 291,600 ± 0.1%
Explanation:
Net income = .09 × $2,200,000 = $198,000
Dividends = .20 × $198,000 = $39,600
Net $ 198,000

income
Less:
Dividends 39,600
Increase
in retained
earnings
$ 158,400
Increase in
assets $ 450,000
Less: Increase
in retained
earnings
158,400
External funds
needed $ 291,600
3.
award:
0.56 out of
1.00 point
Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer
season. Units sold are anticipated as follows:
March 3,650
April 7,650
May 12,300
June 10,300
33,900
If seasonal production is used, it is assumed that inventory will directly match sales for each month and
there will be no inventory buildup.
The production manager thinks the preceding assumption is too optimistic and decides to go with level
production to avoid being out of merchandise. He will produce the 33,900 units over four months at a
level of 8,475 per month.
a. What is the ending inventory at the end of each month? Compare the unit sales to the units produced
and keep a running total. (Leave no cells blank - be certain to enter "0" wherever required.)
Ending

Inventory
March 4,825 ± 0.1% units
April 5,650 ± 0.1% units
May 1,825 ± 0.1% units
June 0 units
b. If the inventory costs $12 per unit and will be financed at the bank at a cost of 12 percent, what is the
monthly financing cost and the total for the four months? (Use 1.0 percent as the monthly
rate.)(Leave no cells blank - be certain to enter "0" wherever required.)
Inventory
Financing Cost
March $ 579 ± 1%
April 678 ± 1%
May 219 ± 1%
June 0
Total financing cost $ 1,476 ± 1%
Explanation:
a.
Bambino Sporting Goods
Units
Sold
Units
Produced
Change in
Inventory
Ending
Inventory
Units
March 3,650 8,475 4,825 4,825
April 7,650 8,475 825 5,650
May 12,300 8,475 –3,825 1,825
June 10,300 8,475 –1,825 0
b.
Bambino Sporting Goods
Ending
Inventory
Units
Total
Cost
($12 per
unit)
Inventory Financing
Cost
(at 1.0% per month)
March 4,825 $57,900 $ 579
April 5,650 67,800 678
May 1,825 21,900 219
June 0 0 0
Total financing cost = $ 1,476

Loading page 6...

4.
award:
1 out of
1.00 point
Biochemical Corp. requires $580,000 in financing over the next three years. The firm can borrow the
funds for three years at 12.90 percent interest per year. The CEO decides to do a forecast and predicts
that if she utilizes short-term financing instead, she will pay 9.75 percent interest in the first year, 14.50
percent interest in the second year, and 10.90 percent interest in the third year. Assume interest is paid
in full at the end of each year.
a. Determine the total interest cost under each plan.
Interest Cost
Long-term fixed-rate $ 224,460 ± 0.1%
Short-term variable-rate $ 203,870 ± 0.1%
b. Which plan is less costly?
Short-term variable-rate plan
Explanation:
a.
Long-term fixed-rate interest cost = 3 × (.1290 × $580,000) = $224,460
Short-term variable-rate interest cost:
Year 1 interest = .0975 × $580,000 = $56,550
Year 2 interest = .1450 × $580,000 = $84,100
Year 3 interest = .1090 × $580,000 = $63,220
Total interest = $56,550 + 84,100 + 63,220 = $203,870
b.
The short-term variable-rate financing plan has the lower cost.
5.
award:
1 out of
1.00 point
Sauer Food Company has decided to buy a new computer system with an expected life of three years.
The cost is $440,000. The company can borrow $440,000 for three years at 14 percent annual interest or
for one year at 12 percent annual interest. Assume interest is paid in full at the end of each year.
a. How much would Sauer Food Company save in interest over the three-year life of the computer
system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same
12 percent rate? Compare this to the 14 percent three-year loan.

Loading page 7...

Interest
12 percent loan $ 158,400 ± 0.1%
14 percent loan $ 184,800 ± 0.1%
Interest savings $ 26,400 ± 0.1%
b. What if interest rates on the 12 percent loan go up to 18 percent in year 2 and 21 percent in year 3?
What would be the total interest cost compared to the 14 percent, three-year loan?
Interest
Fixed-rate 14% loan $ 184,800 ± 0.1%
Variable-rate loan $ 224,400 ± 0.1%
Additional interest cost $ 39,600 ± 0.1%
Explanation:
a.
12% fixed-rate interest cost = 3 × (.12 × $440,000) = $158,400
14% fixed-rate interest cost = 3 × (.14 × $440,000) = $184,800
Interest savings = $184,800 − 158,400 = $26,400
b.
14% fixed-rate interest cost = 3 × (.14 × $440,000) = $184,800.
Short-term variable-rate interest cost:
Year 1 interest = .12 × $440,000 = $52,800
Year 2 interest = .18 × $440,000 = $79,200
Year 3 interest = .21 × $440,000 = $92,400
Total interest = $52,800 + 79,200 + 92,400 = $224,400
Additional interest cost = $224,400 − 184,800 = $39,600
6.
award:
2 out of
2.00 points
Assume that Hogan Surgical Instruments Co. has $4,100,000 in assets. If it goes with a low-liquidity plan
for the assets, it can earn a return of 14 percent, but with a high-liquidity plan, the return will be 10
percent. If the firm goes with a short-term financing plan, the financing costs on the $4,100,000 will be 6
percent, and with a long-term financing plan, the financing costs on the $4,100,000 will be 8 percent.
a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.
Anticipated return $ 328,000 ± 0.1%

Loading page 8...

b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.
Anticipated return $ 82,000 ± 0.1%
c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-
financing mix.
Anticipated Return
Low liquidity $ 246,000 ± 0.1%
High liquidity $ 164,000 ± 0.1%
Explanation:
a.
Most aggressive:
Low
liquidity
return
$4,100,000 ×.14= $ 574,000
Short-term
financing
cost
4,100,000 ×.06= – 246,000
Anticipated
return $ 328,000
b.
Most conservative:
High
liquidity
return
$4,100,000 ×.10= $ 410,000
Long-term
financing
cost
4,100,000 ×.08= – 328,000
Anticipated
return $ 82,000
c.
Moderate approach:
Low
liquidity
return
$4,100,000 ×.14= $ 574,000

Loading page 9...

Long-term
financing
cost
4,100,000 ×.08= – 328,000
$ 246,000
High
liquidity
return
$4,100,000 ×.10= $ 410,000
Short-term
financing
cost
4,100,000 ×.06= – 246,000
$ 164,000
7.
award:
3 out of
3.00 points
Assume that Atlas Sporting Goods Inc. has $1,010,000 in assets. If it goes with a low-liquidity plan for
the assets, it can earn a return of 18 percent, but with a high-liquidity plan the return will be 15 percent. If
the firm goes with a short-term financing plan, the financing costs on the $1,010,000 will be 12 percent,
and with a long-term financing plan, the financing costs on the $1,010,000 will be 14 percent.
a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.
Anticipated return $ 60,600 ± 0.1%
b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.
Anticipated return $ 10,100 ± 0.1%
c. Compute the anticipated return after financing costs with the two moderate approaches to the
asset-financing mix.
Anticipated Return
Low liquidity $ 40,400 ± 0.1%
High liquidity $ 30,300 ± 0.1%
d. If the firm used the most aggressive asset-financing mix described in part a and had the anticipated
return you computed for part a, what would earnings per share be if the tax rate on the anticipated
return was 30 percent and there were 20,000 shares outstanding? (Round your answer to 2
decimal places.)
Earnings per share $ 2.12 ± 1%

Loading page 10...

e-1. Now assume the most conservative asset-financing mix described in part b will be utilized. The tax
rate will be 30 percent. Also assume there will only be 5,000 shares outstanding. What will earnings
per share be? (Round your answer to 2 decimal places.)
Earnings per share $ 1.41 ± 1%
e-2. Would the conservative mix have higher or lower earnings per share than the aggressive mix?
Lower
Explanation:
a.
Most aggressive:
Low liquidity return $1,010,000 ×.18 = $181,800
Short-term financing cost 1,010,000 ×.12 = –121,200
Anticipated return 60,600
b.
Most conservative:
High liquidity return $1,010,000 ×.15 = $151,500
Long-term financing cost 1,010,000 ×.14 = –141,400
Anticipated return 10,100
c.
Moderate approach:
Low liquidity return $1,010,000 ×.18 = $181,800
Long-term financing cost 1,010,000 ×.14 = –141,400
Anticipated return $40,400
High liquidity return $1,010,000 ×.15 = $151,500
Short-term financing cost 1,010,000 ×.12 = –121,200
Anticipated return $30,300
d.
Anticipated return $60,600

Loading page 11...

Taxes (30%) 18,180
Earnings after
taxes $42,420
Shares 20,000
Earnings per share $2.12
e-1.
Anticipated return $10,100
Taxes (30%) 3,030
Earnings after
taxes $7,070
Shares 5,000
Earnings per share $1.41
e-2.
The more conservative financing mix has lower earnings per share.
8.
award:
2 out of
2.00 points
Colter Steel has $5,700,000 in assets.
Temporary
current
assets
$ 3,400,000
Permanent
current
assets
1,620,000
Fixed
assets 680,000
Total
assets $ 5,700,000
Short-term rates are 12 percent. Long-term rates are 17 percent. Earnings before interest and taxes are
$1,200,000. The tax rate is 40 percent.
If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is
true of short-term financing, what will earnings after taxes be?

Loading page 12...

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