Corporate Finance I

Homework 9
Prof. Mateev

Silviya Mihaylova
ID 100044174
Problem 1
nominal cost of trade credit= 3/97* 365/(30-15)=3.01%*24.33=75.26%
effective cost of trade credit= (1+0.7526/24.33)^24.33-1=109.84%

Problem 2
3/10 net 30
year sales=$912,500
in 10 days- 40%
in 40 days-60%
a) DSO= 0.4* 10+ 0.6*40=28 days
b) ADS= 912,500/365=2,500
Receivables= DSO*ADS= 28* 2,500= 70,000
c) DS0= 0.4*10+0.6*30=22 days
Receivables= 22 * 2,500=55,000

Problem 3
2/10 net 40
sales= $4,562,500
A/R= 437,500
10 days- 50%
x days- 50%
ADS= 4,562, 500/ 365=12,500
Receivables (discount) =0.5 *10 * 12,500=62,500
Receivables (nondiscount)= 437,500-62,500=375,000
DSO (nondiscount):
375,000 = 0.5 *DSO (nondiscount)* 12,500=> DSO (nondiscount)=60 days
Nominal cost of trade credit (nondiscount)=2/98*365/(60-10)=>
=>2.04*7.3=14.90%
Effective cost of trade credit= (1+0.1490/7.3)^7.3 – 1= 15.89%

Problem 4
Sales= 150,000
Net income= 9,000
Inventory turnover= 7.5
DSO=36.5 days
COGS= 121,667
Fixed assets= 35,000
Payable defferal period= 40 days
a) CCC:
Inventory turnover= sales/inventory=> 7.5= 150,000/x=>
=> inventory= 20,000
Inventory conversion period= 20,000/(121,667/365)= 60 days
CCC= 60+36.5- 40= 56.5 days
b)
DSO= Receivables/ (Sales/365)=> 36.5= Receivables/ (150,000/365)=>
=> Receivables= 15,000
total assets= 20,000+15,000+35,000=70,000
total asset turnover= sales/ total assets= 150,000/ 70,000=2.1429
ROA= Net income/ Total assets= 9,000/ 70,000= 12.86%
c)
if inventory turnover= 9.0
Inventory turnover= sales/inventory=> 9= 150,000/ inventory=>
=> inventory= 16,667
Inventory conversion period= 16,667/ (121,667/365)=50 days
CCC= 50+ 36.5-40=45.5 days
total assets= 16,667+ 15,000 + 35,000=66,667
total assets turnover= 150,000/ 66,667=2.25
ROA= Net income/ Total assets= 9,000/ 66,667=13.5 %