FIN610 Module 2 Homework

fin610_module_2_homework.xls

Problem One

	Module Two Homework Assignment
	Student's Name:
Problem 1 (From Chapter 3)
	Magic Marker, Incorporated is a midsized manufacturer of magic marker pens. As part of its performance measurement and evaluation management tools, the company uses EVA. The following financial information was provided by the company to its accountant:
		Magic Marker, Inc.
		Selected Financial Data
		2012	2013
	Revenue and Expense Data
	Revenues	$6,250,000	$7,000,000
	Cost of goods sold	$4,575,000	$4,960,000
	Gross profit	$1,675,000	$2,040,000
	Operating expenses	$1,437,500	$1,600,000
	Operating profit (EBIT)	$237,500	$440,000
	Balance Sheet Data
	Cost of capital	5%	5%
	Short-term and long-term capital employed	$3,125,000	$2,100,000
	Complete parts a. and b. below:
a.	Using the financial data provided above and the EVAtm formula, calculate the EVAtm four 2012 and 2013.
		2012	2013
b.	Based on the module content and the previous module on the role of working capital, use your calculations and provide a brief but specific explanation of how EVA may increase as a result of improving working capital and increasing operating profits in reducing capital employed:

	Module Two Homework Assignment
Problem 2 (From Chapter 3)
	Window Printing, LLC needs to purchase a new printing press for $10,000 in six (6) months. The company has a good understanding of the Time Value of Money and is looking at possibly financing the purchase; however, they prefer to pay cash for the equipment. As the Chief Financial Officer, please answer the following questions to present to the Finance Committee for consideration. Complete parts a. and b. below.
a.	How much would the company have to invest today to have $10,000 in cash available in six (6) months? The rate of return being offered on the funds invested today and the annual interest rate is 4.5% based upon the simple interest formula (Hint: You need to convert 6 months (n) to days based on a 365 day year). Round your answer to two decimal places.
	Interpret the value you found above:
b.	Assume that Window Printing, Inc. decides to wait six (3) months to make the investment due to an unexpected cash expenditure but still needs the new printing press in six (6) months. How much would the company have to invest today to have $10,000 in cash available in three (3) months? The rate of return being offered on the funds will remain 4.5% continuing to use the simple interest formula (Assume a 365 day year). Round your answer to two decimal places.
	Interpret the value you found above:

	Module Two Homework Assignment
Problem 3 (From Chapter 3)
	The Imperial Sugar Company, located in Honolulu, Hawaii has determined that by implementing a new policy in its credit terms, it could potentially increase its NPV from $0.40 per day to $0.50 per day. Assume a 365 day year. Complete parts a. and b. below.
a.	Assume that the company’s annual opportunity cost of capital is 6%. How much of an increase, if any, would the shareholders of the company realize from the implementation of this new credit policy? Do not round your intermediate steps. Round your final answer to two decimal places.
b.	Consider that while the company is making its decision, the opportunity cost rises to 7.25%. Recalculate part a. using the new 7.25% rate.
	Explain the variation in the PVs based upon the relationship between the discount rate and PV.