B3

Question 0

Days’ sales in accounts receivable

Answer 0

Ending AR / Average daily sales

% times discount period plus
% times customers who pay by net due

Question 1

Cost of Factoring with monthly amounts

Answer 1

1. Total factored x Fee x 360/30
2. (Total factored less Amount withheld) x percent/12 x 360/30
   __________
   Total Cost to company

___________
Net Cost

Now divide by amount subject to interest

Question 2

Investment calculation for ROI

Answer 2

Average working capital + Average PPE

Question 3

Investment turnover

Answer 3

Sales / Average investment

Question 4

Net initial cash flow for NPV

Answer 4

Invoice, shipping, installation
Increase in working capital required
Less cash proceeds from old (net of tax)

Question 5

Operations cash flows for NPV

Answer 5

Add inflows net of tax

Add depreciation shield (depr x rate)

Question 6

Terminal year cash flows for NPV

Answer 6

Selling price with tax implications
Less expenses to dispose
Plus any tax savings from donation
Changes in working capital (in or out)

2 Net Inflows in Final Year!!
Operations
Terminal

Question 7

Degree of Operating Leverage

Answer 7

% change in EBIT
________________
% change in Sales

Higher leverage means more fixed costs which means higher risk but potentially higher returns.

Question 8

WACC Subsidized Debt

Answer 8

Debt carries the lowest cost of capital and is tax deductible. Essentially subsidized by government. Use After Tax cost of debt in WACC.

Question 9

Indicator of a conservative working capital policy

Answer 9

Increase in the ratio of current assets to units of output

Question 10

Short-term investment goals

Answer 10

Liquidity and safety

Question 11

Methods of converting accounts receivable to cash

Answer 11

Collection agencies
Factoring
Cash discounts
EFTs

Question 12

Average Gross Receivables Balance

Answer 12

Average daily sales

x average collection period