ACC 225: Week One Solution

ACC 225

Axia College of University of Phoenix (UoP)

Financial Accounting

Larson, K. D., Wild, J. J., & Chiappetta B. (2005). Fundamental accounting principles (17th ed.)

ACC 225 Week 1 Solution

Exercises: Accounting and Business Organizations

• Resource: Fundamental Accounting Principles, p. 30
• Due Date: Day 5
• Post your answers to Exercises 1-1 and 1-4

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FIN 200: Quiz and Final Exam

FIN 200: Quiz and Final Exam: Complete and Up-to-Date

Introduction to Finance: Harvesting the Money Tree

Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Last Update: July 14, 2010

Complete Compilation/ Testbank of FIN 200 Quizzes and Final Exam

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Fin 200 CheckPoint: Week 2 Two Quiz
Fin 200 CheckPoint: Week 4 Four Quiz
Fin 200 CheckPoint: Week 6 Six Quiz
Fin 200 Exercise: Week 8 Eight Quiz
Fin 200 Final Exam

FIN 200: Week Nine Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 9 Solution

Assignment: Present Value, Future Value, and Annuity Due

• Resource: Ch. 9 of Foundations of Financial Management
• Due Date: Day 5 [Individual forum]
• Complete Problems 3, 4, and 5 on pp. 278-279.
• Post as an attachment.

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3. You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply
$5,000 .926 (one year’s discount rate at 8 percent).
b. What is the value of your investment one year from now? Multiply your
answer to part a by .926 (one year’s discount rate at 8 percent).
c. What is the value of your investment today? Multiply your answer to part b
by .926 (one year’s discount rate at 8 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present
value of $1) for n 3 and i 8 percent. Multiply this tabular value by
$5,000 and compare your answer to part c. There may be a slight difference
due to rounding.
4. If you invest $9,000 today, how much will you have:
a. In 2 years at 9 percent?
b. In 7 years at 12 percent?
c. In 25 years at 14 percent?
d. In 25 years at 14 percent (compounded semiannually)?
5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is
discounted at 12 percent, which should you choose?

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FIN 200: Week Eight Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 8 Solution

CheckPoint: Time Value of Money

• Resource: Ch. 7 of Foundations of Financial Management
• Due Date: Day 5 [Individual forum]
• Write a 200- to 300-word description of the four time value of money concepts: present value, present value of an annuity, future value, and future value of annuity. Describe the characteristics of each concept and give an example of when each would be used.

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FIN 200: Week Seven Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 7 Solution

CheckPoint: Loan Scenario

• Resource: Ch. 8 of Foundations of Financial Management
• Due Date: Day 7 [post to the Individual forum]
• Complete the Comprehensive Problem: Midland Chemical Co. on pp. 250-251.
• Post the assignment as an attachment.

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Midland Chemical Co. is negotiating a loan from Manhattan Bank and Trust. The
small chemical company needs to borrow $500,000.
The bank offers a rate of 8¼ percent with a 20 percent compensating balance
requirement, or as an alternative, 9¾ percent with additional fees of $5,500 to cover
services the bank is providing. In either case the rate on the loan is floating (changes as
the prime interest rate changes), and the loan would be for one year.

a. Which loan carries the lower effective rate? Consider fees to be the equivalent of
other interest.

b. If the loan with a 20 percent compensating balance requirement were to be paid
off in 12 monthly payments, what would the effective rate be? (Principal equals
amount borrowed minus the compensating balance.)

c. Assume the proceeds from the loan with the compensating balance requirement
will be used to take cash discounts. Disregard part b about installment payments
and use the loan cost from part a.
If the terms of the cash discount are 1.5/10, net 50, should the firm borrow the funds
to take the discount?

d. Assume the firm actually takes 80 days to pay its bills and would continue to
do so in the future if it did not take the cash discount. Should it take the cash
discount?

e. Because the interest rate on the loans is floating, it can go up as interest rates go
up. Assume that the prime rate goes up by 2 percent and the quoted rate on the
loan goes up the same amount. What would then be the effective rate on the loan
with compensating balances? Convert the interest to dollars as the first step in
your calculation.

f. In order to hedge against the possible rate increase described in part e, Midland
decides to hedge its position in the futures market. Assume it sells $500,000
worth of 12-month futures contracts on Treasury bonds. One year later, interest
rates go up 2 percent across the board and the Treasury bond futures have gone
down to $488,000. Has the firm effectively hedged the 2 percent increase in
interest rates on the bank loan as described in part e? Determine the answer in
dollar amounts.

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FIN 200: Week Six Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 6 Solution

CheckPoint: Credit Policy Decisions

• Resource: Ch. 7 of Foundations of Financial Management
• Due Date: Day 5 [Individual forum]
• Complete Problem 17 on p. 220.

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Collins Office Supplies is considering a more liberal credit policy to increase
sales, but expects that 9 percent of the new accounts will be uncollectible. Collection
costs are 5 percent of new sales, production and selling costs are 78 percent,
and accounts receivable turnover is five times. Assume income taxes of
30 percent and an increase in sales of $80,000. No other asset buildup will be
required to service the new accounts.
a. What is the level of accounts receivable needed to support this sales
expansion?
b. What would be Collins’s incremental aftertax return on investment?
c. Should Collins liberalize credit if a 15 percent aftertax return on investment
is required?
Assume Collins also needs to increase its level of inventory to support
new sales and that inventory turnover is four times.
d. What would be the total incremental investment in accounts receivable and
inventory to support an $80,000 increase in sales?
e. Given the income determined in part b and the investment determined in
part d, should Collins extend more liberal credit terms?

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FIN 200: Week Five Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 5 Solution

Assignment: Alternative Financing Plans

Resource: Ch. 6 of Foundations of Financial Management
Due Date: Day 7 [post to the Individual forum]
Complete Problem 14 on p. 184.
Post the assignment as an attachment.

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Lear, Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested in fixed assets.

a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 10 percent. Short-term financing currently costs 5 percent. Lear’s earnings before interest and taxes are $200,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.

b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $200,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.

c. What are some of the risks and cost considerations associated with each of these alternative financing strategies?

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