Prof Script – Working Capital Management, International Finance, and Mergers and Acquisitions

  
Ch. 18: Questions 3 & 11 (Questions and Problems section)
1(3) Changes in the Operating Cycle [LO1] Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the letter N for no change:
a. Average receivables goes up.
b. Credit repayment times for customers are increased.
c. Inventory turnover goes from 3 times to 6 times.
d. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f. Payments to suppliers are accelerated.
2(11) Calculating the Cash Budget [LO3] Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2015:

Ch. 20: Questions 8 & 14 (Questions and Problems section)
3(8) Interpreting Miller–Orr Based on the Miller–Orr model, describe what will happen to the lower limit, the upper limit, and the spread (the distance between the two) if the variation in net cash flow grows. Give an intuitive explanation for why this happens. What happens if the variance drops to zero?
4(14) Credit Policy Evaluation [LO2] The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. Based on the following information, determine if the company should proceed or not. Therequired return is 2.5 percent per period.

Ch. 21: Questions 4 & 7 (Questions and Problems section)
5(4) Using Spot and Forward Exchange Rates [LO1] Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.11.
a. Which is worth more, a U.S. dollar or a Canadian dollar?
b. Assuming absolute PPP holds, what is the cost in the  United States 
of an Elk head beer if the price in  Canada is Can$2.50? Why might the beer actually 
sell at a different price in the United States?
c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?
d. Which currency is expected to appreciate in value?
e. Which country do you think has higher interest rates—the United States or Canada? Explain.
6(7) Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in the United States is .31 percent per month. The interest rate in Great Britain is .34 percent per month. The spot exchange rate is £.573, and the three-month forward rate is £.575. Ignoring transaction costs, in which country would the treasurer want to invest the company’s funds? Why?
Ch. 26: Questions 1 & 2 (Questions and Problems section): Microsoft® Excel® template provided for Problem 2
7(1) Calculating Synergy [LO3] Pearl, Inc., has offered $357 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $319 million as an independent operation. If the merger makes economicPage 888 sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?
8(2) Balance Sheets for Mergers [LO2] Consider the following premerger information about Firm X and Firm Y: Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share. Assuming that neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm X assuming the use of purchase accounting.

Answer each question in a 100+ word answer. 
9 (1)- Depending on the need that the purchase will be used for the company can determine whether to use long or short term loans. Its not only important so other creditors will know if you are credit worthy, but you wouldn’t want to misuse a type of lending. Imagine if you got a long term loan to pay for current needs, but had to pay it off over several years. It might make your payments lower, but would tie up long term loans. What are some of the other issues if you use the “wrong” type of loan?
10 (2)- A company might handle risks differently than any other company, which is fine since every company’s management and operations is different. It doesn’t make one manager right or wrong versus another. As a manager taking a job with a new company, how would you make sure to understand how the new company handles their risk management?
11(3)- How does a firm’s credit policy affect its sales, bad debts and accounts receivable?
12(4) – CAPM describes the relationship between the expected rates of return on risky assets in terms of their systematic risk. Its value depends on what things? And why are these things so important?
13(5) -CAPM states that the expected return equals the rate on a risk free security plus some type of risk premium. Is there some sort of threshold that must be met for a required return to determine if the investment is a good one or not? Is it a hard threshold and what is it?
14(6) – Describe interest rate parity and its effect on country currency rates?