Finance problems/ questions

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Instructions:
1. NO plagiarism
2. The evaluation of the work, especially the qualitative questions depends on the organization of the material and the depth of the answers.
3. PLEASE SHOW COMPUTATIONS FOR QUALITATIVE PROBLEMS, NO COMPUTATIONS, NO CREDIT.
4. Read each problem carefully and answer completely.
5. Please write your name at the top of the submitted document.
6. Please answer the questions in the context of our class discussions.

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(12 pts) 1.Explain what you believe is the dividend policy for The Kroger Co. (KR). In answering this question, discuss the concepts that were examined in class. The points earned depend on the depth of the discussion of the dividend policy for KR. Provide financial metrics as necessary.

(16 pts) 2. Go to gurufocus.com to find the weighted average cost of capital for The Kroger Co. (KR).
Required:a) Explain how the WACC is calculated.b) Explain the WACC in the context of a hurdle rate, return on invested capital (ROIC), an optimal capital structure, and an optimal capital budget.

(12 pts) 3.With regard to accounts payable:a) Explain the significance of financing with accounts payable.b) Explain the rationale of taking a cash discount, such as 2/10, net/30.c) Additionally, determine the approximate balance of accounts payable, if a company stretches its payables to 45 days and on average, they make purchases of $1,000,000 per day from their vendors.d) Explain what the stretching accomplishes if the vendors should be paid in 30 days

(10 pts) 4.Nunn Household Products wishes to speed up collection of its receivables. Nunn currently offers credit terms of 1/20, net 40. It is considering changing to terms of 2/15 net 30. The collection period is expected to be reduced from 50 to 20 days. The percentage of customers paying within the discount period is expected to increase from 50 percent to 75 percent. Bad debt losses average 6 percent of sales and are not expected to change under the proposed policy. The inventory level is expected to increase by $200,000. Annual billings are $30 million. The variable cost ratio is 70 percent. The pretax return on funds made available by this change in policy is 15 percent. Assuming the change in terms is made; determine the net effect on Nunn’s pretax profits.

(20 pts) 5.Kelly Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available:·Annual sales are $10,000,000.·Fixed assets are $6,000,000.·The debt ratio is 60 percent.·EBIT is $1,200,000.·Tax rate is 20 percent.·With an aggressive policy, current assets will be 30 percent of sales; with a conservative policy, current assets will be 50 percent of sales.·With an aggressive financing policy, short-term debt will be 80 percent of the total debt; with a conservative financing policy, short-term debt will be 20 percent of the total debt.·Interest rate for short-term debt is 5 percent. Interest rate for long-term debt is 10 per cent.
Required:
A) Determine the return on equity for the aggressive approach and for the conservative approach.

b) Discuss which approach you would choose

(10 pts) 6.The Herro Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Herro’s customers. Herro’s financial manager believes the new system would decrease its collection float by as much as three days. The new bank would require a compensating balance of $1,500,000, whereas its present bank has no compensating balance requirement. Additionally, the new bank will require a fixed annual fee of $300,000 each year to service the account. Herro’s average daily collections are $1,000,000, and it can earn 8% on it short-term investments. Should Herro make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest earning account.)

(20 pts) 7.Bradley Drink Products is considering expanding into the sports drink business with a new product. Assume that you were recently hired as assistant to the director of capital budgeting and you must evaluate the new project.The sports drink would be produced in an unused building adjacent to Bradley’s Tampa plant; Bradley owns the building, which is fully depreciated. The required equipment would cost $500,000, plus an additional $100,000 for shipping and installation. In addition, inventories would rise by $75,000, while accounts payable would increase by $25,000. All of these costs would be incurred today. The equipment will be depreciated by the straight line method over the life of the project.The project is expected to operate for 6 years, at which time it will be terminated. The cash inflows are assumed to begin 1 year after the project is undertaken and to continue until the end of the sixth year. At the end of the project’s life, the equipment is expected to have a salvage value of $100,000.Unit sales are expected to total 100,000 units per year, and the expected sales price is $4.00 per unit. Cash operating costs for the project (total operating costs less depreciation) are expected to total 70% of dollar sales. Bradley’s tax rate is 25%, and its WACC is 10%. Tentatively, the sports drink project is assumed to be of equal risk to Bradley’s other assets. You have been asked to evaluate the project and to make a recommendation as to whether it should be accepted or rejected.
Required:a) Determine the net present value of the project.b) Determine the payback period of the project.c) Determine the internal rate of return of the project.d) Do you recommend that the project be undertaken? Explain.

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66guyMBA 645 Exam 2Spring 1, 2021 Name_______________________________Instructiwork. Any plagiarism will result in a grade of zero for the exam. If you have questions, please consult with the instructor. 2. The evaluation of the work, especially the qualitative questions depends on the organization of the material and the depth of the answers. 3. PLEASE SHOW COMPUTATIONS FOR QUALITATIVE PROBLEMS, NO COMPUTATIONS, NO CREDIT.4. Read each problem carefully and answer completely.5. Please write your name at the top of the submitted document.6. Please answer the questions in the context of our class discussions.7. Please submit exam in one document to Canvas.(12 pts) 1.Explain what you believe is the dividend policy for The Kroger Co. (KR). In answering this question, discuss the concepts that were examined in class. The points earned depend on the depth of the discussion of the dividend policy for KR. Provide financial metrics as necessary.(16 pts) 2. Go to gurufocus.com to find the weighted average cost of capital for The Kroger Co. (KR). Required:a) Explain how the WACC is calculated.b) Explain the WACC in the context of a hurdle rate, return on invested capital (ROIC), an optimal capital structure, and an optimal capital budget.(12 pts) 3.With regard to accounts payable:a) Explain the significance of financing with accounts payable.b) Explain the rationale of taking a cash discount, such as 2/10, net/30.c) Additionally, determine the approximate balance of accounts payable, if a company stretches its payables to 45 days and on average, they make purchases of $1,000,000 per day from their vendors.d) Explain what the stretching accomplishes if the vendors should be paid in 30 days

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