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# Hot Foot Shoes would like to maintain its cash

Subject: General Questions / General General Questions
Question
1-) HotFoot Shoes would like to maintain its cash account at a minimum level of \$37,000 but expects the standard deviation in net daily cash flows to be \$3,200, the effective annual rate on marketable securities to be 3.3 percent per year, and the trading cost per sale or purchase of marketable securities to be \$320 per transaction.

What will be its optimal upper cash limit? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places.)

Optimal upper cash limit \$

2-) Suppose that LilyMac Photography has annual sales of \$238,000, cost of goods sold of \$173,000, average inventories of \$5,300, average accounts receivable of \$26,600, and an average accounts payable balance of \$7,800.

Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Cash cycle days

3-) Suppose that Ken-Z Art Gallery has annual sales of \$902,000, cost of goods sold of \$592,000, average inventories of \$178,000, average accounts receivable of \$111,000, and an average accounts payable balance of \$55,000.

Assuming that all of Ken-Z’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Cash cycle days

4-) Suppose your firm is seeking a seven-year, amortizing \$840,000 loan with annual payments and your bank is offering you the choice between a \$894,000 loan with a \$54,000 compensating balance and a \$840,000 loan without a compensating balance. The interest rate on the \$840,000 loan is 8.0 percent.

How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Interest rate %

5-) Veggie Burgers, Inc., would like to maintain its cash account at a minimum level of \$252,000 but expects the standard deviation in net daily cash flows to be \$12,700, the effective annual rate on marketable securities to be 4.4 percent per year, and the trading cost per sale or purchase of marketable securities to be \$31.00 per transaction.

What will be its optimal upper cash limit? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Optimal upper cash limit \$

6-) Suppose your firm is seeking a three year, amortizing \$220,000 loan with annual payments and your bank is offering you the choice between a \$226,000 loan with a \$6,000 compensating balance and a \$220,000 loan without a compensating balance. The interest rate on the \$220,000 loan is 9.5 percent.

How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Interest rate %

7-) Watkins Resources faces a smooth annual demand for cash of \$1.70 million, incurs transaction costs of \$65 every time the firm sells marketable securities, and can earn 2.7 percent on its marketable securities.

What will be its optimal cash replenishment level? (Enter your answer in dollars not in millions. Round your answer to 2 decimal places.)

Optimal cash \$

😎 Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were \$7.7 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of \$8.7 million next year.

Assets Liabilities and Equity

Current assets \$ 2,539,000 Current liabilities \$ 3,460,380

Fixed assets 5,700,000 Long-term debt 1,850,000

Equity 2,928,620

________________________________________ ________________________________________ ________________________________________ ________________________________________

Total assets \$ 8,239,000 Total liabilities and equity \$ 8,239,000

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

________________________________________

If all assets and current liabilities are expected to grow with sales, what amount of additional funds will Wind Em need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)

9-) Suppose a firm has had the following historic sales figures.

Year: 2009 2010 2011 2012 2013

Sales \$ 2,540,000 \$ 3,670,000 \$ 4,480,000 \$ 4,900,000 \$ 5,580,000

________________________________________

What would be the forecast for next year’s sales using regression to estimate a trend?

Next year’s sales \$

10-) Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were \$7.4 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of \$9.4 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in \$1 million increments.

Assets Liabilities and Equity

Current assets \$ 2,294,000 Current liabilities \$ 2,368,000

Fixed assets 5,402,000 Long-term debt 1,700,000

Equity 3,628,000

________________________________________ ________________________________________ ________________________________________ ________________________________________

Total assets \$ 7,696,000 Total liabilities and equity \$ 7,696,000

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

________________________________________

If current assets and current liabilities are expected to grow with sales, what amount of additional funds will Wall-E need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)