Module/Week 1 — Introduction to Financial Management

For the Week 1 Textbook Assignment

Please complete

Sun Microsystems

Questions 1-7

pages 90-93


Fancy Distributing Company of Atlanta sells
fans and heaters to retail outlets throughout the Southeast. Joe Fancy, the
president of the company, is thinking about changing the firm’s credit policy
to attract customers away from competitors. The present policy calls for 3/15,
net 30 cash discount. The new policy would call for a 5/10, net 45 cash
discount. Currently, 45 percent of Fancy customers are taking the discount, and
it is anticipated that this number would go up to 65 percent with the new
discount policy. It is further anticipated that annual sales would increase
from a level of $150,000 to $575,000 as a result of the change in the cash
discount policy.

The increased sales would also affect the
inventory level. The average inventory carried by Logan is based on a
determination of an EOQ. Assume sales of fans and heaters increase from 10,500
to 22,750 units. The ordering cost for each order is $175, and the carrying
cost per unit is $2.50 (these values will not change with the discount). The
average inventory is based on EOQ/2. Each inventory has an average cost of $12.50.

Cost of goods sold is equal to 60 percent
of net sales; general and administrative expenses are 15 percent of net sales;
and interest payments of 14 percent will only be necessary for the increase in
the accounts receivable and inventory balances. Taxes will be 34 percent of
before-tax income.

Compute the accounts receivable
balance before and after the change in the cash discount policy. Use the net
sales (total sales minus cash discounts) to determine the average daily sales.

Determine the EOQ before and
after the change in the cash discount policy. Translate this into average
inventory (in units and dollars) before and after the change in the cash
discount policy.

Compute the following income

Should the new cash discount
policy be utilized? Briefly comment.


Weapons, Inc. (Comprehensive time value of money)
Rambo, President of General Weapons, Inc., was pleased to hear that he had
three offers from major defense companies for his latest missile firing
automatic ejector. He will use a discount rate of 10 percent to evaluate each


$1,600,000 now plus $825,000 from the end
of years 6 through 15. Also if the product goes over $60 million in cumulative
sales by the end of year 15, he will receive an additional $3,000,000. Rambo
thought there was an 80 percent probability this would happen.


Thirty percent of the buyer’s gross
margin for the next four years. The buyer in this case is Air Defense, Inc.
(ADI). Its gross margin is 70 percent. Sales for year 1 are projected to be $3.75
million and then grow by 35 percent per year. This amount is paid today and
is not discounted.


A trust fund would be set up for the next
four years. At the end of that period, Rambo would receive the proceeds (and
discount them back to the present at
10 percent). The trust fund called for semiannual payments for the next four
years of $150,000 (a total of $300,000 per year). The payments would start
immediately. Since the payments are coming at the beginning of each period
instead of the end, this is an annuity due. To look up the future value of
the annuity due in the tables, add 1 to n, where n is the number of periods,
and subtract 1 from the value in the table. Assume the annual interest rate
on this annuity is 10 percent annually (5 percent semiannually). Determine the
present value of the trust fund’s final value.

Find the present value of each of
the three offers and then indicate which one has the highest present value.

Module 6

Group Discussion
Board forum

By Module/Week 6, students will be assigned to a group in
the Group Discussion Board. A minimum 1,000-word essay will be worked on as a
group, and then posted to the Discussion Board for everyone to see. Replies are
not necessary; however, they are strongly encouraged. Students are to briefly
describe how the Bible is related to the topics covered in the course. An
integration of the Bible must be explicitly shown, in relation to a course
topic, in order to receive points. In addition, at least two other outside
scholarly sources (the text may count as one) should be used to substantiate
the group’s position. This assignment must be submitted to SafeAssign, as well
as the Discussion Board by one of the group members. Individual projects are
not allowed. Social loafing is not acceptable, and will result in a student
earning a grade of 0