I Am Willing To Pay The Price Of 800 For These 3 Questions

I Am Willing To Pay The Price Of 800 For These 3 Questions To Be Answ

I am willing to pay the price of 8.00 for these 3 questions to be answered. Are you interested? If so, when can you have them completed? Thank you.

Chapter 15, page 447 P1 1. Pretty Lady Cosmetic Products has an average production process time of forty days. Finished goods are kept on hand for an average of fifteen days before they are sold. Accounts receivable are outstanding an average of thirty-five days, and the firm receives forty days of credit on its purchases from suppliers. a. Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn over in a year? b. Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable inventories, and accounts payable. What would be the net financing need considering only these three accounts? Chapter 16, page 476, P3 and P4 3. Obtain a current issue of the Federal Reserve Bulletin, or review a copy from the Fed’s Web site ( http:// www.federalreserve.gov) or the St. Louis Fed’s Web site (http:// www.stlouisfed.org), and determine the changes in the prime rate that have occurred since the end of 2000. Comment on any trends in the data. 4. Compute the effective cost of not taking the cash discount under the following trade credit terms: a. 2/ 10 net 40 b. 2/ 10 net 50 c. 3/ 10 net 50 d. 2/ 20 net 40

Paper For Above instruction

The series of questions presented pertains to fundamental financial management concepts, including the calculation of operating cycle duration, investment analysis, understanding of monetary policy shifts, and evaluation of trade credit costs. These are critical analytical tools for financial managers to optimize liquidity, working capital, and cost of credit, ultimately supporting strategic decision-making in corporate finance.

Question 1: Estimation of the Operating Cycle and Turnover Frequency

Preliminary data from Pretty Lady Cosmetic Products indicates an average production process time of forty days, inventory holding period of fifteen days, accounts receivable period of thirty-five days, and accounts payable period of forty days. The operating cycle is a composite metric representing the duration from the procurement of raw materials to the collection of cash from sales.

To estimate the operating cycle, sum the production and inventory periods, then subtract the payable period:

Operating Cycle = Production time + Inventory holding period – Accounts payable period

= 40 days + 15 days – 40 days = 15 days.

However, conventionally, the operating cycle is calculated as the sum of the inventory period and receivables period, reflecting the time from raw material purchase to cash collection. Using this conventional approach:

Operating Cycle = Inventory period + Accounts receivable period = 15 + 35 = 50 days.

Determining the turnover frequency involves dividing the number of days in a year (assuming 365 days) by the operating cycle duration:

Cycle turnover per year = 365 / 50 ≈ 7.3 times.

This indicates that the firm’s operating cycle turns over approximately 7.3 times annually, reflecting its efficiency in converting inventory and receivables into cash.

Question 2: Investment and Financing Needs Based on Sales Data

Given the annual net sales of $1,200,000 and cost of goods sold (COGS) of $900,000, the average investment in receivables, inventory, and payables can be estimated using the applicable turnover ratios and industry benchmarks.

First, calculating the receivables turnover ratio:

Receivables Turnover = Net Sales / Average Accounts Receivable.

Assuming accounts receivable is aligned with the receivables period (35 days), and using the formula for accounts receivable:

Average Accounts Receivable = (Net Sales / 365) Receivables days = ($1,200,000 / 365) 35 ≈ $115,068.

Similarly, the inventory levels can be approximated from inventory holding days:

Average Inventory = (COGS / 365) Inventory days = ($900,000 / 365) 15 ≈ $36,986.

Accounts payable is determined based on the payables period:

Average Accounts Payable = (COGS / 365) Payables days = ($900,000 / 365) 40 ≈ $98,630.

Net financing need, considering only these accounts, is the difference between the investment in receivables and inventory minus payables:

Net Financing Need = Accounts Receivable + Inventory – Accounts Payable = $115,068 + $36,986 – $98,630 ≈ $53,424.

This figure indicates the additional working capital the firm needs to finance its operations, assuming other factors remain constant.

Question 3: Analyzing Changes in Prime Rates Since 2000

The Federal Reserve Bulletin provides critical insights into monetary policy trends. Since the end of 2000, the prime rate—a benchmark for lending rates—has experienced multiple fluctuations.

From the data available, the prime rate was around 8.25% at the end of 2000. During the early 2000s, it decreased markedly, reaching lows of approximately 3.25% around 2003 amid economic slowdown fears and post-dot-com bubble adjustments. The rate remained relatively low through the mid-2000s, hovering around 3.25% to 5.25%, reflecting accommodative monetary policy to stimulate growth.

Following the 2008 financial crisis, a significant decline occurred, with the rate dropping to near zero levels (0-0.25%). Subsequently, from 2015 onwards, the Fed gradually increased the prime rate in response to economic recovery, reaching about 3.50% by late 2018. Due to policy uncertainties and economic shocks such as the COVID-19 pandemic, there have been oscillations, with rates decreasing again during 2020-2021.

Trends indicate a pattern of initial stability, sharp declines during crises, and gradual increases during economic recoveries. These shifts impact borrowing costs, consumer spending, and investment decisions across sectors, emphasizing the importance of monitoring monetary policy for financial strategy.

Question 4: Computing Cost of Forgone Cash Discounts

Trade credit terms offer discounts to incentivize early payments, with the cost of foregoing such discounts calculated to understand their relative expense relative to alternative financing options.

For each scenario, the effective cost of not taking the discount is computed as an annualized rate, based on the discount percentage, the credit period, and the discount period:

• Scenario a: 2/10 net 40

Cost = [(Discount %)/(1 – Discount %)] (365 / (Net period – Discount period)) = (0.02 / 0.98) (365 / (40 – 10)) ≈ 0.0204 * 12.17 ≈ 24.8% annually.

• Scenario b: 2/10 net 50

Cost ≈ (0.02 / 0.98) (365 / (50 – 10)) ≈ 0.0204 9.13 ≈ 18.6% annually.

• Scenario c: 3/10 net 50

Cost ≈ (0.03 / 0.97) (365 / (50 – 10)) ≈ 0.0309 9.13 ≈ 28.2% annually.

• Scenario d: 2/20 net 40

Cost ≈ (0.02 / 0.98) (365 / (40 – 20)) ≈ 0.0204 18.25 ≈ 37.2% annually.

These calculations reveal that the cost of not taking early discounts can be substantial, especially when the credit terms deviate from standard periods and discounts. Firms must weigh these costs against alternative financing sources to optimize working capital management.

Conclusion

In summary, understanding the operating cycle helps firms optimize cash flow management, reducing the need for external financing. Investments in receivables, inventory, and payables reveal the working capital implications of sales strategies. Analyzing shifts in the prime rate provides insights into broader economic conditions influencing borrowing costs. Lastly, evaluating the effective cost of forgone cash discounts aids in making informed credit management decisions. Mastery of these concepts enables firms to improve liquidity, profitability, and competitive positioning in dynamic markets.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Damodaran, A. (2010). Applied Corporate Finance. John Wiley & Sons.
• Federal Reserve Bank of St. Louis. (n.d.). FRED Economic Data. https://fred.stlouisfed.org
• Federal Reserve Bulletin. (Various issues). Federal Reserve Board. https://www.federalreserve.gov/publications/bulletin.htm
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance. McGraw-Hill Education.
• Van Horne, J. C., & Wachowicz, J. M. (2008). Fundamentals of Financial Management. Pearson.
• Keown, A. J., Martin, J. D., & Petty, J. W. (2014). Financial Management: Principles and Applications. Pearson.
• Investopedia. (n.d.). Cost of Capital. https://www.investopedia.com/terms/c/costofcapital.asp
• OECD. (2012). Financial Markets Trends and Data. Organisation for Economic Co-operation and Development.
• U.S. Federal Reserve. (2023). Monetary Policy Report. https://www.federalreserve.gov/monetarypolicy.htm