Complete the following from thetextbook:
· Chapter 15: P1
· Chapter 16: P1
CHAPTER 15: P1
Pretty Lady Cosmetic Products has anaverage production process time of forty days. Finished goods are kept on handfor an average of fifteen days before they are sold. Accounts receivable areoutstanding an average of thirty-five days, and the firm receives forty days ofcredit on its purchases from suppliers.
a. Estimate the averagelength of the firm’s short-term operating cycle. How often would the cycle turnover in a year?
b. Assume net sales of$1,200,000 and cost of goods sold of $900,000. Determine the average investmentin accounts receivable, inventories, and accounts payable. What would be thenet financing need considering only these three accounts?
CHAPTER 16: P1
A supplier is offering your firm a cashdiscount of 2 percent if purchases are paid for within ten days; otherwise, thebill is due at the end of sixty days. Would you recommend borrowing from a bankat an 18 percent annual interest rate to take advantage of the cash discountoffer? Explain your answer.
Complete the following homework scenario:
Compare the results of the three (3) methods by quality of information fordecision making. Using what you have learned about the three (3) methods,identify the best project by the criteria of long term increase in value. (Youdo not need to do further research.) Convey your understanding of the TimeValue of Money principles used or not used in the three (3) methods. Review thevideo titled “NPV, IRR, MIRR for Mac and PC Excel” (located at https://www.youtube.com/watch?v=C7CryVgFbBc andpreviously listed in Week 4) to help you understand the foundationalconcepts:
Assume that two gas stations are for sale with the following cash flows; CF1 isthe Cash Flow in the first year, and CF2 is the Cash Flow in the second year.This is the time line and data used in calculating the Payback Period, NetPresent Value, and Internal Rate of Return. The calculations are done for you.Your task is to select the best project and explain your decision. The methodsare presented and the decision each indicates is given below.
Gas Station A
Gas Station B
Three (3) Capital Budgeting Methods are presented:
1. Payback Period: Gas Station A is paid backin 2 years; CF1 in year 1, and CF2 in year 2. Gas Station B is paid back in one(1) year. According to the payback period, when given the choice between twomutually exclusive projects, the investment paid back in the shortest time isselected.
2. Net Present Value: Consider the gas stationexample above under the NPV method, and a discount rate of 10%:
NPVgas station A = $100,000/(1+.10)2 – $50,000 = $32,644
NPVgas station B = $50,000/(1+.10) +$25,000/(1+.10)2 – $50,000 = $16,115
3. Internal Rate of Return: Assuming10% is the cost of funds; the IRR for Station A is 41.421%.; for Station B,36.602.
Summary of the Three (3) Methods:
o Gas Station Bshould be selected, as the investment is returned in 1 period rather than 2periods required for Gas Station A.
o Under the NPVcriteria, however, the decision favors gas station A, as it has the higher netpresent value. NPV is a measure of the value of the investment.
o The IRR methodfavors Gas Station A. as it has a higher return, exceeding the cost of funds(10%) by the highest return.