4541 Answer Key Midterm W13 - 2207 Words

AK/ADMS 4541 Advanced Corporate Finance Winter 2013 Mid-Term Exam Answer Key Question 1 (35 marks) a.) b.) (8 marks) (4 marks) Calculating the EOQ. EOQ = SQRT(2 * F * T / H) = (2 * 80 * 200,000 / 1.00)0.5 EOQ = 5,656.85 kg (4 marks) Calculating the EOQ savings. Total cost = (F * T/Q) + (H * Q / 2) = (80 * 200,000 / 10,000) + (1.00 * 10,000/2) Total Cost @10,000 kg = $6,600 Total Cost EOQ = (F * T / Q) + (H * Q / 2) where Q = 5,656.85 kg = (80 * 200,000 / 5,656.85) + (1.00 * 5,656.85 / 2) = $5,656.85 Savings with EOQ = $943.15 = $6,600 - $5,656.85 per planning period (10 marks) Try Q (actually, EOQ) = 5,656.85 kg. Then total cost = order costs + holding costs + purchase costs = (80)(200,000) / 5,656.85 + (1.00)(5,656.85) / 2 +†¦show more content†¦Note: Using compound interest here is acceptable: PVDC = -96,470.09 PVDisney = -97,298.19 Question 3 (35 marks) a.) Proposed Terms (E) $2,750,000 $7,534.25 Sales per 365-day year Sales per day, S Sales growth rate, g -7.27% Up-front Variable Cost Ratio (VCR) 70.00% Collection expenses (EXP) at DSO 1.45% Bad debt expense ratio, b , at DSO 7.00% Discount percent, d 0 Discount period, days 0 Proportion taking discount, p 0 Non-discount period, days 56 k = company s annual nominal cost of capital 15% i = daily cost of capital 15% / 365 = Current Terms (N) $2,550,000 $6,986.30 70.00% 1.25% 7.00% 0 0 0 56 4.1096% Note: an annual nominal cost of 15% compounded daily implies an annual effective cost of { [ (1 + .15/365)^365 ] - 1 } * 100 = 16.18% per year. Cashflow timeline under proposed terms (11 marks) Proposed Terms In terms of the Zn formula 1st term PV from discount period $0.00 no discount period 2nd term PV from credit period $6,849.22 = 7,534.25*(1-0.07)/(1+ i*56) 3rd term 4th term PV variable costs PV credit expenses ($5,273.97) = 70%*$7534.25 ($106.79) = 1.45% *7534.25/(1+ i*56) Zn =$1,468.46 = NPV per day of proposed terms Cashflow timeline under current terms (11 marks) In terms of the Ze formula Current Terms 1st term PV from discount period $0.00 no discount period 2nd term PV from credit