FIN370 Finance for Business
University of Phoenix
FIN370
Final – 30 questions 29 correct (Score: 96.67%)
Buying and selling in more than
one market to make a riskless profit is called:
o globalization
o profit
maximization.
o arbitrage.
o international
trading
2 Capital
Structure Theory in general assumes that:
o A firm’s cash flows
will grow indefinitely at a constant rate.
o A firm’s cost of
capital rises as a firm uses more financial leverage.
o A firm’s value is
determined by discounting the firm’s expected cash flows by the WACC.
o A firm’s value is
determined by capitalizing (discounting) the firm’s expected net income by the
firm’s cost of equity.
3. Which of the following best
describes why cash flows are utilized rather than accounting profits when
evaluating capital projects?
o Cash flows have a
greater present value than accounting profits.
o Cash flows are more
stable than accounting profits.
o Cash flows reflect
the timing of benefits and costs more accurately than accounting profits.
o Cash flows improve
the tax position of a firm more than accounting profits.
4. A company collects 60%
of its sales during the month of the sale, 30% one month after the sale, and
10% two months after the sale. The company expects sales of $10,000 in August,
$20,000 in September, $30,000 in October, and $40,000 in November. How much
money is expected to be collected in October?
o $25,000
o $15,000
o $35,000
o $45,000
5 Given
an accounts receivable turnover of 8 and annual credit sales of $362,000, the
average collection period (360-day year) is
o 60 days.
o 75 days
o 90 days.
o 45 days
6 Long-term
financial plans typically encompass:
o the entire
lifecycle of the corporation.
o about 5 years.
o 6 to 12 months.
o to 10 years.
7 Which
of the following is most likely to occur if a firm over-invests in net working
capital?
o The quick ratio
will be lower than it should be.
o The times interest
earned ratio will be lower than it should be.
o The current ratio
will be lower than it should be.
o The return on
investment will be lower than it should
8 When
the impact of taxes is considered, as the firm takes on more debt
o there will be no
change in total cash flows.
o both taxes and
total cash flow to stockholders and bondholders will decrease.
o the weighted
average cost of capital will increase.
o cash flows will
increase because taxes will decrease
9 We
compute the profitability index of a capital-budgeting proposal by Initial
outlay = $1,748.80
o dividing the
present value of the annual after-tax cash flows by the cost of capital.
o dividing the
present value of the annual after-tax cash flows by the cost of the project.
o multiplying the
cash inflow by the IRR.
o multiplying the IRR
by the cost of capital.
10 Which
of the following financial ratios is the best measure of the operating
effectiveness of a firm’s management?
o Current ratio
o Gross profit margin
o Quick ratio
o Return on
investment
11 Apple
Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014; sales
were $3,450,000 in fiscal 2013. Assume the following figures for the fiscal
year ending 2013: cash $70,000; accounts receivable $250,000; inventory
$400,000; net fixed assets $520,000; accounts payable $235,000; and accruals
$155,000. Use the percent-of-sales method to forecast cash for the fiscal year
ending 2014.
o $216,418
o $319,604
o $75,003
o $120,725
12 Which
of the following statements best represents what finance is about?
o Maximizing profits
o Reducing risk
o How political,
social, and economic forces affect corporations
o Creation and
maintenance of economic wealth
13 Aspects
of demand risk controllable by the firm include:
o interest rates.
o entry of external
competitors.
o status of the
regional and national economy.
o product quality
14 If
you have $20,000 in an account earning 8% annually, what constant amount could
you withdraw each year and have nothing remaining at the end of five
years?
o $3,525.62
o $5,008.76
o $3,408.88
o $2,465.78
15 When
calculating the weighted average cost of capital, which of the following has to
be adjusted for taxes?
o Common stock
o Retained earnings
o Preferred stock
o Debt
16 Which
of the following is not part of the underwriting process?
o the Federal Reserve
o the Securities and
Exchange Commission
o the prospectus
o the syndicate
17 Which
of the following best describes why cash flows are utilized rather than
accounting profits when evaluating capital projects?
o Cash flows are more
stable than accounting profits.
o Cash flows have a
greater present value than accounting profits.
o Cash flows improve
the tax position of a firm more than accounting profits.
o Cash flows reflect
the timing of benefits and costs more accurately than accounting profits.
18 Metals Corp. has $2,575,000 of debt, $550,000 of preferred
stock, and $18,125,000 of common equity. Metals Corp.’s after-tax cost of debt
is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock
has a cost of 14.05%. What is Metals Corp.’s weighted average cost of
capital?
o 6.56%
o 8.32%
o 10.84%
o 12.78%
19 Which
of the following could offset the higher risk exposure a company would face if
it’s current ratio and net working capital were relatively low?
o Its current assets
would need to be highly liquid.
o Its accounts
receivable collection policy could increase the average collection period.
o It could offer no
discounts for early payment by its customers.
o It could buy back
some of its shares in the open market in order to reduce its equity.
20 The
Securities Investor Protection Corporation protects individuals from
o brokerage firm
failures
o fraud by
corporations
o making poor
investment decisions
o other investors who
fail to make delivery
21 If managers are making decisions to maximize shareholder
wealth, then they are primarily concerned with making decisions that should:
o increase the market
value of the firm’s common stock.
o either increase or
have no effect on the value of the firm’s common stock.
o maximize sales
revenues
o positively affect
profits.
22 The
Oviedo Thespians are planning to present performances of their Florida Revue on
2 consecutive nights in January. It will cost them $5,000 per night for theater
rental, event insurance and professional musicians. The theater will also take
10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket
to raise $1,000 for their organization?
o 1,314 tickets
o 1,223 tickets
o 1000 tickets
o 1,112 tickets
23 Which
of the following is true about bonds?
o At maturity of the
bond, the investor receives the market price of the bond.
o They are
obligations from the investor to the corporation.
o Their interest rate
always varies with the Consumer Price Index
o They have a fixed
maturity, and they pay an amount equal to the maturity value times the coupon
rate each year.
24 Which of the following goals is in the best long-term
interest of stockholders?
o Maximizing of the
market value of the existing shareholders’ common stock
o Risk minimization
o Maximizing sales
revenues
o Profit maximization
25 Project Sigma requires
an investment of $1 million and has a NPV of $10. Project Delta requires an
investment of $500,000 and has a NPV of $150,000. The projects involve
unrelated new product lines. What is your evaluation of these two projects?
o The company should
look at other investment criteria, not just NPV.
o Both projects
should be accepted because they have positive NPV’s
o Neither project
should be accepted because they might compete with one another
o Only project Delta
should be accepted. Alpha’s NPV is too low for the investment.
26 Compute
the payback period for a project with the following cash flows, if the
company’s discount rate is 12%.
Initial outlay = $450
Cash
flows: Year 1 = $325
Year 2 = $65
Year 3 = $100
·
3.17 years
·
3.43 years
·
2.6 years
·
2.88 years
27 You
just purchased a parcel of land for $10,000. If you expect a 12% annual rate of
return on your investment, how much will you sell the land for in 10 years?
o $31,060
o $25,000
o $39,720
o $38,720
28 Which
of the following is true regarding Investment Banks?
o Under the
Glass-Steagal act, commercial banks were allowed to operate as Investment
banks.
o When Glass-Steagal
was repealed in 1999, commercial banks and Investment banks had to be separate
entities.
o As a result of the
financial crisis of 2008, all stand-alone Investment banks either failed, were
merged into commercial banks, or became commercial banks.
o As of 2010, stand
alone Investment banks are numerous.
29 Accounting
break-even analysis solves for the level of sales that will result in:
net income = $0.00.
NPV = $0.00.
Free cash flow = $0.00.
IRR = Cost of Capital.
30. Delta Inc. is considering the
purchase of a new machine which is expected to increase sales by $10,000 in
addition to increasing non-depreciation expenses by $3,000 annually. Due to the
sales increase, Delta expects its working capital to increase $1,000 during the
life of the project. Delta will depreciate the machine using the straight-line
method over the project’s five year life to a salvage value of zero. The
machine’s purchase price is $20,000. The firm has a marginal tax rate of 34
percent, and its required rate of return is 12 percent. The machine’s initial
cash outflow is:
$23,000.
$27,000.
$20,000.
$21,000.
FIN370
Myfinancelab Week-4 (Score: 100%)
Question-1
Templeton Extended Care Facilities Inc is considering the acquisition of a
chain of cemeteries for $400 million. since the primary asset of this business
is real estate, Templeton's management has determined that they will be able to
borrow the majority of the money needed to buy the business. The current owners
have no debt financing but Templeton plans to borrow $300 million and invest
only $100 million in equity in the acquisition. What weights should Templeton
use in computing the WACC for this acquisition? Round to one decimal place.
The appropriate weight of debt Wd is
The appropriate weight of common equity Wcs is
Question-2
2). Compute the cost of capital for the firm for the following:
a). A bond that has a $1,000 par value (face value) and a contract or coupon
interest rate of 11.9%. Interest payments are $59.50 and are paid semiannually.
The bonds have a current market value of $1,129 and will mature in 10 years.
The form's marginal tax rate is 34% .
aa). The after-tax cost of debt is _% (round to two decimals places)
b). A new common stock issue that paid a $1.82 dividend last year. The firm's
dividends are expected to continue to grow at 7.2% per year forever. The price
of the firm's common stock is now $27.97.
bb). The cost of common equity is _% (round to two decimal places)
c). A preferred stock that sells for $136 pays a dividend of 9.1 percent and
has a $100 par value.
cc). The cost of the preferred stock is _% (round to two decimal places)
d). A bond selling to yield 11.1% where the form's tax rate is 34%.
dd). After tax cost of debt is _% (round to two decimal places)
Question-3
(Cost of Preferred Stock) The preferred stock of Gator Industries sells for
$35.49 and pays $2.75 per year in dividends. What is the cost of preferred
stock financing? If Gator were to issue 550,000 more preferred shares just like
the ones it currently has outstanding, it could sell them for $35.49 a share
but would incur flotation costs of $3.12 per share. what are the flotation
costs for issuing the preferred shares and how should this cost be incorporated
into the NPV of the project being financed?
Question-4
(Cost of Debt) The Walgren Corporation is contemplating a new investment to be
finance using one-third from debt. The firm could sell new $1,000 par value
bonds with a 15-year maturity at a price of $949 that carry a coupon interest
rate is 12.7 % that is paid semiannually, and the bonds would mature in fifteen
years. If the company is in a 34% tax bracket, what is the after-tax cost of
capital to Walgren for bonds?
Question-5
(Cost of Debt) Gillian Stationery Corporation needs to raise $600,000 to
improve its manufacturing plant. It has decided to issue a $1,000 par value
bond with a coupon rate of 8% with interest paid semiannually and a 10-year
maturity. If the investors require a 10% rate of return:
a. Compute the market value of the bonds.
b. How many bonds will the firm have to issue to receive the needed funds?
c. What is the firm’s after-tax cost of debt if the firm’s tax rate is 34
percent?
Question-6
(Weighted average cost of capital) As a consultant to GBH Skiwear, you have
been asked to compute the appropriate discount rate to use in the evaluation of
the purchase of a new warehouse facility. You have determined the market value
of the firm’s current capital structure (which the firm considers to be its
target mix of financing sources) as follows:
Source of Capital Market Value
Bonds $500,000
Preferred stock $110,000
Common stock $420,000
To finance the purchase, GBH will sell 20-year bonds with a $1,000 par value
paying 7.7% per year at the market price of $954. Preferred stock paying a
$2.45 dividend can be sold for $34.32. Common stock for GBH is currently
selling for $50.04 per share. The firm paid a $3.94 dividend last year and
expects dividends to continue growing at a rate of 34.1% per year into the
indefinite future. The firm’s marginal tax rate is 34%. What discount rate
should you use to evaluate the warehouse project?
Question-7
Lowe’s Companies, Inc. (LOW) and its subsidiaries operate as a home improvement
retailer in the United States and Canada. As of February 1, 2008, it operated
1,534 stores in 50 states and Canada. The company’s balance sheet for February
1, 2008, included the following sources of financing:
In Thousands of Dollars Financial Structure
Liabilities
Current liabilities
Accounts payable ……………………….. $ 4,137,000
Short-term/current debt …………………. 1,104,000
Other current liabilities …………………. 2,510,000
Total current liabilities …………………. $ 7,751,000
Long-term debt ………………………… 5,576,000
Other long-term liabilities ……………… 670,000
Long-term liabilities ……………………. $ 6,246,000
Stockholder equity …………………….. $16,098,000
Total …………………………………… $30,095,000
a. Calculate the values of Lowe’s debt ratio and interest-bearing debt ratio.
b. If the market value of Lowe’s common equity is $35.86 billion and Lowe’s has
no excess cash, what is the firm’s debt-to-enterprise-value ratio?
Question-8
(Computing interest tax savings) Dharma Supply has earnings before interest and
taxes (EBIT) of $527,000, interest expenses of $307,000 and faces a corporate
tax rate of 36 percent.
a. What is Dharma Supply's Net Income?
b. what would dharmas net income be if it didnt have any debt?
c. what are the firms interest tax savings?
Question-9
You have developed the following pro forma income statement for your
corporation. It represents the most recent years operations, which ended
yesterday. Your supervisor in the controllers office has just handed you a
memorandum asking for written responses to the following questions:
a. If Sales Should increase by 30%, by what percent would earnings before
interest and taxes and net income increase?
b. If sales should decrease by 30% by what percent would earnings before
interest and taxes and net income decrease?
c. If the firm were to reduce its reliance on debt financing such that interest
expense were cut in half, how would this affect your answers to parts A and B?
Question-10
(Capital Asset Pricing Model) CSB, Inc has a beta of 0.765. If the expected
market return is 10.5 percent and the risk free rate is 3.5 percent, what is
the appropriate expected return of CSB(using the CAPM)?
Question-11
(Capital Asset Pricing Model) The expected return for the general market is
11.0 percent, and the risk premium in the market is 6.3%. Tasaco, LBM, and
Exxos have betas of 0.849, 0.621 and 0.578, respectively. What are the
corresponding required rates of return for the three securities?
Question-12
James Fromholtz is considering whether to invest in a newly formed investment
fund. The fund’s investment objective is to acquire home mortgage securities at
what it hopes will be bargain prices. The fund sponsor has suggested to James
that the fund’s performance will hinge on how the national economy performs in
the coming year. Specifically, he suggested the following possible outcomes:
a. Based on these potential outcomes, what is your estimate of the expected
rate of return from this investment opportunity?
b. Would you be interested in making such an investment? Note that you lose all
your money in one year if the economy collapses into the worst state or you double
your money if the economy enters into a rapid expansion.
c. Would you be interested in making such an investment?
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1.) (Net
present value calculation) Big Steve’s makers of swizzle sticks, is considering
the purchase of a new plastic stamping machine. This investment requires an
initial outlay of $95, 000 and will generate net cash inflows of $17,000 per
year for 8 years.
a. What
is the project’s NPV using a discount rate of 9 percent? Should the project be
accepted? Why or Why not?
b. What is the project’s NPV using a discount rate of 17 percent? Should the
project be accepted? Why or Why not?
c. What is this project’s internal rate of return? Should the project be
accepted? Why or Why not?
2.) (IRR
calculation) What is the internal rate of return for the following project: An
initial outlay of $9,500 resulting in a single cash inflow of $29,942 in 11
years?
3.) (NPV
and IRR calculation) East Coast Television is considering a project with an
initial outlay of $X (you will have to determine this amount). It is expected
that the project will produce a positive cash flow of $44,000 a year at the end
of each year for the next 13 years. The appropriate discount rate for this project
is 7 percent. If the project has an internal rate of return of 9 percent, what
is the project’s net present value?
4.) (IRR
and NPV calculation) The cash flows for three independent projects are found
below.
PROJECT A PROJECT B PROJECT C
YEAR 0
(INITIAL INVESTMENT) $(60,000) $(105,000) $(420,000)
Year 1 $11,000 $29,000 $220,000
YEAR 2 17,000 $29,000 $220,000
YEAR 3 21,000 29,000 $220,000
YEAR 4 28,000 29,000 ________
Year 5 32,000 29,000 _________
a.
Calculate the IRR for each of the projects
b. If the discount rate for all three projects is 15 percent, which projects or
projects would you want to undertake?
c. What is the net present value of each of the projects where the appropriate
rate is 15 percent?
5. (IRR
of an uneven cash flow stream) Microwave Oven Programming, Inc. is considering
the construction of a new plant. The plant will have an initial cash outlay of
$6.4 million (=-$6.4 million), and will produce a cash flow of $2.7 million at
the end of year 1, $4.2 million at the end of year 2, and $1.8 million at the
end of years 3 through 5. What is the internal rate of return on this new
plant?
6. (NPV,
PI, and IRR calculations) Fijisawa, Inc. is considering a major expansion of
its product line and has estimated the following cash flows associated with
such an expansion. The initial outlay would be $1,850,000 and the project would
generate cash flows of$520,000 per years. The appropriate discount rate is 16.1
percent.
a. Calculate the net present value.
b. Calculate the profitability index
c. Calculate the internal rate of return.
d. Should this project be accepted? Why or why not?
7.
(Payback period, net present value, profitability index, and internal rate or
return calculations) You are considering a project with an initial cash outlay
of $81,000 and expected cash flows of $25,110 at the end of each year for six
years. The discount rate for this project is 10.3 percent.
a. What are the project’s payback and discounted payback periods?
b. What is the project’s NPV?
c. What is the project’s PI?
d. What is the project’s IRR?
8.
(Calculating operation cash flows) Assume that a new project will annually
generate revenues of $1,800,000 and cash expenses (including both fixed and
variable costs) of $700,000, while increasing depreciation by $190,000 per
year. In addition, the firm’s tax rate is 29 percent. Calculate the operating
cash flows for the new project.
9.
(Calculating project cash flows and NPV) You are considering expanding your
product line that currently consists of skateboards to include gas powered
skateboards, and you feel expanding your product line that currently consists
of skateboards to include gas powered skateboards, and you feel you can sell
11,000 of these per year for 10 years (after which time this project is
expected to shut down with solar-powered skateboards taking over). The gas
skateboards would sell for $90 each with variable of costs of $50 for each one
produced, and annual fixed costs associated with production would be
$190,000…….
a. What is the initial cash outlay associated with this project?
b. What are the annual net cash flows associated with this project for years 1
through 9?
c. What is the terminal cash flow in year 10 (that is, what is the free cash
flow in year 10 plus any additional cash flows associated with termination of
the project)?
d. What is the project’s NPV given a required rate of return of 7 percent?
10.
(Inflation and project cash flows) Carlyle Chemicals is evaluating a new
chemical compound used in the manufacture of a wide range of consumer products.
The firm is concerned that inflation in the cost of raw materials will have an
adverse effect on the project’s flows. Specifically, the firm expects the cost
per unit (which is currently $0.87) will rise at a rate of 11 percent annually
over the next three years. The per-unit selling price is currently $1.01 and
this price is expected to rise at a merger 1 percent annual rate over the next
three years. If Carlyle expects to sell 6, 7.5, and 10 million units for the
next three years, respectively, what is your estimate of the gross profits to
the firm? Based on these estimates, what recommendation would you offer to the
firm’s management with regard to this product? (Note: Be sure to round each
unit price and unit cost per year to the nearest cent.)
11. (Calculating
the expected NPV of a project) Management at the Doctors Bone and Joint Clinic
is considering whether to purchase a newly developed MRI machine which they
feel will provide the basis for better diagnoses of foot and knee problems. The
new machine is quite expensive and will be used for a number of years. The
clinic’s CFO asked an analyst to work up estimates of the NPV of the investment
under three different assumptions about the level of demand for its use (high,
medium, and low). The CFO assigned a 50 percent probability to the
medium-demand state, a 30 percent probability to the high state, and the
remaining 20 percent to the low state. After making forecasts of the demand for
the machine based on the CFO’s judgment and past utilization rates for MRI
scans, the following NPV estimates were made:
Demand State Probability of State NPV Estimate
Low 20% $(300,000)
Medium 50% $200,000
High 30% $400,000
a. What
is the expected NPV for the MRI machine based on the above estimates? How would
you interpret the meaning of the expected NPV? Does this look like a good
investment to you?
b. Assuming that the probability of the medium-demand state remains 50 percent,
calculate the maximum probability you can assign to the low-demand state and
still have an expected NPV of 0 or higher.
12.
(Scenario analysis) Family Security is considering introducing tiny GPS
trackers that can be inserted in the sole of a child’s shoe which would then
allow for the tracking of that child if he or she was ever lost or abducted.
The estimates, that might be off by 10 percent (either above or below),
associated with this new product are shown here:
Data Table
Unit price: $125
Variable costs: $75
Fixed costs: $250,000 per year
Expected
sales: 10,000 pr year
Since
this is a new product line, you are not confident in your estimates and would
like to know how well you will fare if your estimates on the items listed above
are 10 percent lower than expected. Assume that this new product line will
require an initial outlay of $1.00 million, with no working capital investment,
and will last for 10 years, being depreciated down to zero using straight-line
depreciation. In addition, the firm’s required rate to return or cost of
capital is 10.0 percent, and the firm’s marginal tax rate is 34 percent.
Calculate the project’s NPV under the “best-case scenario” Calculate the
project’s NPV under the “worst-case scenario.”
13. (Real
options and capital budgeting) You are considering introducing a new
Tex-Mex-Thai fusion restaurant. Upon closer examination, you find that there is
a 50 percent chance that this new restaurant will be well received and will
produce annual cash flows of $805, 000 per year forever (a perpetuity), while
there is a 50 percent chance of it producing a cash flow of only $191,000 per
year forever, (a perpetuity) if it isn’t well.
What is the expected NPV for this project if only one restaurant is built but
isn’t well received? What is expected NPV for this project assuming 15 more are
built if the first restaurant is well received?
14.
(Identifying spontaneous, temporary, and permanent sources of financing)
Classify each of the following sources of new financing as a spontaneous,
temporary, or permanent:
a. A
manufacturing firm enters into a loan agreement with its bank that calls for
annual principal and interest’s payments spread over the next four years.
b. A retail firm orders new items of inventory that are charged to the firm’s
trade credit.
c. A trucking firm issues common stock to the public and used the proceeds to
upgrade its tractor fleet.
15.
(Evaluating trade credit discounts) IF a firm buys on trade credit terms of
5/10, net 50 and decides to forgo the trade credit discount and pay on the net
day, what is the annualized costs of forgoing the discount (assume a 360-day
year)?
SOLVED IN
EXCEL
FIN370
PUBLIC OFFERING FOR A GLOBAL FIRM
Write a 750 to 900 word paper
describing an initial public offering for a global firm.
Include the following:
• The role of the investment banker and underwriter
• The role of an originating house and a syndicate
• An explanation of the pricing of the issue
• A discussion of some of the risks involved in the public offering and how the
securities laws deal with them
• A discussion of any foreign exchange risks the company can face with your
ideas about how to mitigate them
FIN370
Financial Excel Problems
Question-1
Templeton
Extended Care Facilities Inc is considering the acquisition of a chain of
cemeteries for $400 million. since the primary asset of this business is real
estate, Templeton's management has determined that they will be able to borrow
the majority of the money needed to buy the business. The current owners have
no debt financing but Templeton plans to borrow $300 million and invest only $100
million in equity in the acquisition. What weights should Templeton use in
computing the WACC for this acquisition? Round to one decimal place.
The
appropriate weight of debt Wd is
The
appropriate weight of common equity Wcs is
Question-2
2).
Compute the cost of capital for the firm for the following:
a). A bond that has a $1,000 par value (face value) and a contract or coupon
interest rate of 10.9%. The bonds have a current market value of $1,125 and
will mature in 10 years. The form's marginal tax rate is 34% .
aa). Theafter-tax cost of debt is _% (round to two decimals places)
b). A new common stock issue that paid a $1.78 dividend last year. The firm's
dividends are expected to continue to grow at 7.6% per year forever. The price
of the firm's common stock is now $27.29.
bb). The cost of common equity is _% (round to two decimal places)
c). A preferred stock that sells for $146 pays a dividend of 8.2 percent and
has a $100 par value.
cc). The
cost of the preferred stock is _% (round to two decimal places)
d). A bond selling to yield 11.8% where the form's tax rate is 34%.
dd). After tax cost of debt is _% (round to two decimal places)
Question-3
(Cost of
Preferred Stock) The preferred stock of Gator Industries sells for $35.89 and
pays $2.76 per year in dividends. What is the cost of preferred stock
financing? If Gator were to issue 521,000 more preferred shares just like the
ones it currently has outstanding, it could sell them for $35.89 a share but
would incur flotation costs of $2.88 per share. what are the flotation costs
for issuing the preferred shares and how should this cost be incorporated into
the NPV of the project being financed?
Question-4
(Cost of
Debt)
The Walgren Corporation is contemplating a new investment to be finance using one-third
from debt. The firm could sell new $1,000 par value bonds with a 15-year
maturity at a price of $947 that carry a coupon interest rate is 12.7 % that is
paid semiannually, and the bonds would mature in fifteen years. If the
company is in a 34% tax bracket, what is the after-tax cost of capital to
Walgren for bonds?
Question-5
(Cost of
Debt) Gillian Stationery Corporation needs to raise $600,000 to improve
its manufacturing plant. It has decided to issue a $1,000 par value bond
with a coupon rate of 8% with interest paid semiannually and a 10-year
maturity. If the investors require a 10% rate of return:
a.
Compute the market value of the bonds.
b.
How many bonds will the firm have to issue to receive the needed funds?
c.
What is the firm’s after-tax cost of debt if the firm’s tax rate is 34 percent?
Question-6
(Weighted
average cost of capital) As a consultant to GBH Skiwear, you have been asked to compute the
appropriate discount rate to use in the evaluation of the purchase of a new
warehouse facility. You have determined the market value of the firm’s current
capital structure (which the firm considers to be its target mix of financing
sources) as follows:
Source of
Capital Market Value
Bonds
$530,000
Preferred
stock $120,000
Common
stock $450,000
To
finance the purchase, GBH will sell 20-year bonds with a $1,000 par value
paying 7.9% per year at the market price of $958. Preferred stock paying a
$2.52 dividend can be sold for $35.23. Common stock for GBH is currently
selling for $50.04 per share. The firm paid a $4.05 dividend last year and
expects dividends to continue growing at a rate of 3.9% per year into the
indefinite future. The firm’s marginal tax rate is 34%. What discount rate
should you use to evaluate the warehouse project?
Question-7
Lowe’s
Companies, Inc. (LOW) and its subsidiaries operate as a home improvement
retailer in the United States and Canada. As of February 1, 2008, it operated
1,534 stores in 50 states and Canada. The company’s balance sheet for February
1, 2008, included the following sources of financing:
In
Thousands of Dollars Financial Structure
Liabilities
Current
liabilities
Accounts
payable ……………………….. $ 4,137,000
Short-term/current
debt …………………. 1,104,000
Other
current liabilities …………………. 2,510,000
Total
current liabilities …………………. $ 7,751,000
Long-term
debt ………………………… 5,576,000
Other
long-term liabilities ……………… 670,000
Long-term
liabilities ……………………. $ 6,246,000
Stockholder
equity …………………….. $16,098,000
Total
…………………………………… $30,095,000
a.
Calculate the values of Lowe’s debt ratio and interest-bearing debt ratio.
b. If the
market value of Lowe’s common equity is $35.86 billion and Lowe’s has no excess
cash, what is the firm’s debt-to-enterprise-value ratio?
Question-8
(Computing
interest tax savings) Dharma Supply has earnings before interest and taxes
(EBIT) of $511,000, interest expenses of $323,000 and faces a corporate tax
rate of 34 percent.
a. What
is Dharma Supply's Net Income?
b. what
would dharmas net income be if it didnt have any debt?
c. what
are the firms interest tax savings?
Question-9
You have
developed the following pro forma income statement for your corporation.
It
represents the most recent years operations, which ended yesterday. Your
supervisor in the controllers office has just handed you a memorandum asking
for written responses to the following questions:
a. If
Sales Should increase by 20%, by what percent would earnings before interest
and taxes and net income increase?
b. If
sales should decrease by 20% by what percent would earnings before interest and
taxes and net income decrease?
c. If the
firm were to reduce its reliance on debt financing such that interest expense
were cut in half, how would this affect your answers to parts A and B?
Question-10
(Capital
Asset Pricing Model) CSB, Inc has a beta of 0.765. If the expected market
return is 10.5 percent and the risk free rate is 3.5 percent, what is the
appropriate expected return of CSB(using the CAPM)?
Question-11
(Capital
Asset Pricing Model) The expected return for the general market is 10.5
percent, and the risk premium in the market is 7.0%. Tasaco, LBM, and Exxos
have betas of 0.828, 0.612 and 0.509, respectively. What are the corresponding
required rates of return for the three securities?
Question-12
James
Fromholtz is considering whether to invest in a newly formed investment fund.
The fund’s investment objective is to acquire home mortgage securities at what
it hopes will be bargain prices. The fund sponsor has suggested to James that
the fund’s performance will hinge on how the national economy performs in the
coming year. Specifically, he suggested the following possible outcomes:
a. Based on these potential outcomes, what is your estimate of the expected
rate of return from this investment opportunity?
b. Would you be interested in making such an investment? Note that you lose all
your money in one year if the economy collapses into the worst state or you
double your money if the economy enters into a rapid expansion.
c. Would
you be interested in making such an investment?
FIN370
Net Present Value Calculation
1.)
(Net present value calculation) Big Steve’s makers of swizzle sticks, is
considering the purchase of a new plastic stamping machine. This investment
requires an initial outlay of $105, 000 and will generate net cash inflows of
$21,000 per year for 8 years.
a. What
is the project’s NPV using a discount rate of 8 percent? Should the project be
accepted? Why or Why not?
b. What is the
project’s NPV using a discount rate of 14 percent? Should the project be
accepted? Why or Why not?
c. What is this
project’s internal rate of return? Should the project be accepted? Why or Why
not?
a. If the
discount rate is 8 percent, then the project’s NPV is $_____________(Round to
the nearest dollar.)
2.) (IRR calculation) What
is the internal rate of return for the following project: An initial outlay of
$9,000 resulting in a single cash inflow of $17, 538 in 7 years?
The internal rate of return for the project is
_________% (Round to the nearest whole percent.)
3.) (NPV and IRR calculation)
East Coast Television is considering a project with an initial outlay of $X
(you will have to determine this amount). It is expected that the project will
produce a positive cash flow of $60,000 a year at the end of each year for the
next 13 years. The appropriate discount rate for this project is 9 percent. If
the project has an internal rate of return of 14 percent, what is the project’s
net present value?
a. If the
project has internal rate of 12%, then the project’s initial outlay is $___________(Round
to the nearest cent.)
4.)
(IRR and NPV calculation) The cash flows for three independent projects are
found below.
PROJECT
A
PROJECT B PROJECT
C
YEAR 0
(INITIAL INVESTMENT)
$(65,000)
$(110,000)
$(420,000)
Year
1
$9,000
$27,000
$220,000
YEAR
2
16,000
$27,000
$220,000
YEAR
3
23,000
27,000
$220,000
YEAR
4
28,000
27,000
________
Year
5
32,000
27,000
_________
a.
Calculate the IRR for each of the projects
b.
If the discount rate for all three projects is 15 percent, which projects or
projects would you want to undertake?
c. What is the
net present value of each of the projects where the appropriate rate is 15
percent?
a. The IRR of
Project A is ________% (ROUND TO TWO DECIMALS.)
5. (IRR
of an uneven cash flow stream) Microwave Oven Programming, Inc. is considering
the construction of a new plant. The plant will have an initial cash outlay of
$6.5 million (=-$6.5 million), and will produce a cash flow of $2.4 million at
the end of year 1, $4.2 million at the end of year 2, and $1.8 million at the
end of years 3 through 5. What is the internal rate of return on this new
plant?
The IRR
of the project is _________% (Round to two decimal places.)
6.
(NPV, PI, and IRR calculations) Fijisawa, Inc. is considering a major
expansion of its product line and has estimated the following cash flows
associated with such an expansion. The initial outlay would be $2,040,000 and
the project would generate cash flows of$500,000 per years. The appropriate
discount rate is 10.6 percent.
a.
Calculate the net present value.
b.
Calculate the profitability index
c.
Calculate the internal rate of return.
d. Should
this project be accepted? Why or why not?
a. The
NPV of the expansion is $___________(Round to the nearest dollar.)
7.
(Payback period, net present value, profitability index, and internal rate or
return calculations) You are considering a project with an initial cash outlay
of $71,000 and expected cash flows of $19,880 at the end of each year for six
years. The discount rate for this project is 9.6 percent.
a.
What are the project’s payback and discounted payback periods?
b.
What is the project’s NPV?
c.
What is the project’s PI?
d. What is the
project’s IRR?
a.
The payback period of the project is ___________years. (Round to two decimal
places.)
8.
(Calculating operation cash flows) Assume that a new project will annually
generate revenues of $2,200,000 and cash expenses (including both fixed and
variable costs) of $1,050,000, while increasing depreciation by $240,000 per
year. In addition, the firm’s tax rate is 29 percent. Calculate the operating
cash flows for the new project.
The
firm’s operating cash flows are $_____________(Round to the nearest dollar.)
9.
(Calculating project cash flows and NPV) You are considering expanding your
product line that currently consists of skateboards to include gas powered
skateboards, and you feel expanding your product line that currently consists
of skateboards to include gas powered skateboards, and you feel you can sell
7,000 of these per year for 10 years (after which time this project is expected
to shut down with solar-powered skateboards taking over). The gas skateboards
would sell for $70 each with variable of costs of $50 for each one produced,
and annual fixed costs associated with production would be $190,000. In
additions there would be a $1,200,000 initial expenditure associated with the
purchase of new production equipment. It is assumed that this initial
expenditure will be depreciated using the simplified straight-line method down
to zero over 10 years. The project will also require a one-time initial
investment of $30,000 in net working capital associated with inventory, and
this working capital investment will be recovered when the project is shut
down. Finally, assume that the firm’s marginal tax rate is 37 percent.
a. What
is the initial cash outlay associated with this project?
b. What
are the annual net cash flows associated with this project for years 1 through
9?
c. What
is the terminal cash flow in year 10 (that is, what is the free cash flow in
year 10 plus any additional cash flows associated with termination of the
project)?
d. What
is the project’s NPV given a required rate of return of 7 percent?
a. The
initial cash outlay associated with this project is $_________________. (Round
to the nearest dollar.)
10.
(Inflation and project cash flows) Carlyle Chemicals is evaluating a new
chemical compound used in the manufacture of a wide range of consumer products.
The firm is concerned that inflation in the cost of raw materials will have an
adverse effect on the project’s flows. Specifically, the firm expects the cost
per unit (which is currently $0.88) will rise at a rate of 13 percent annually
over the next three years. The per-unit selling price is currently $.096 and
this price is expected to rise at a merger 4 percent annual rate over the next
three years. If Carlyle expects to sell 5.5, 7.5, and 9.5 million units for the
next three years, respectively, what is your estimate of the gross profits to
the firm? Based on these estimates, what recommendation would you offer to the
firm’s management with regard to this product? (Note: Be sure to round each
unit price and unit cost per year to the nearest cent.)
The gross
profit or (loss) for year 1 is $____________. (Round to the nearest dollar.)
11.
(Calculating the expected NPV of a project) Management at the Doctors Bone and
Joint Clinic is considering whether to purchase a newly developed MRI machine
which they feel will provide the basis for better diagnoses of foot and knee
problems. The new machine is quite expensive and will be used for a number of
years. The clinic’s CFO asked an analyst to work up estimates of the NPV of the
investment under three different assumptions about the level of demand for its
use (high, medium, and low). The CFO assigned a 50 percent probability to the
medium-demand state, a 30 percent probability to the high state, and the
remaining 20 percent to the low state. After making forecasts of the demand for
the machine based on the CFO’s judgment and past utilization rates for MRI
scans, the following NPV estimates were made:
Demand
State
Probability of State
NPV Estimate
Low
20%
$(300,000)
Medium
50%
$200,000
High
30%
$400,000
a.
What is the expected NPV for the MRI machine based on the above estimates? How
would you interpret the meaning of the expected NPV? Does this look like a good
investment to you?
b. Assuming that the
probability of the medium-demand state remains 50 percent, calculate the
maximum probability you can assign to the low-demand state and still have an
expected NPV of 0 or higher. (Hint: The sum of the probabilities
assigned to all three states must be 100 percent.)
a. The expected
NPV for the MRI machine is $___________. (Round to the nearest dollar.)
12.
(Scenario analysis) Family Security is considering introducing tiny GPS
trackers that can be inserted in the sole of a child’s shoe which would then
allow for the tracking of that child if he or she was ever lost or abducted.
The estimates, that might be off by 10 percent (either above or below),
associated with this new product are shown here:
Data
Table
Unit price:
$125
Variable
costs: $75
Fixed
costs: $250,000 per year. Since this is a new product line, you are not
confident in your estimates and would like to know how well you will fare if
your estimates on the items listed above are 10 percent lower than expected.
Assume that this new product line will require an initial outlay of $1.00
million, with no working capital investment, and will last for 10 years, being
depreciated down to zero using straight-line depreciation. In addition, the
firm’s required rate to return or cost of capital is 10.0 percent, and the
firm’s marginal tax rate is 34 percent. Calculate the project’s NPV under the
“best-case scenario” (that is, use the high estimates-unit price 10 percent
above expected, variable costs 10 percent less than expected, fixed costs 10
percent less than expected, and expected sales 10 percent more than expected).
Calculate the project’s NPV under the “worst-case scenario.”
The NPV
for the best-case scenario will be $_________________. (Round to the nearest
dollar.)
13. (Real
options and capital budgeting) You are considering introducing a new
Tex-Mex-Thai fusion restaurant. The initial outlay on this new restaurant is
$6.4 million and the present value of the free cash flows (excluding the
initial outlay) is $5.3 million, such that the project has a negative expected
NPV of $1.1 million. Upon closer examination, you find that there is a 55
percent chance that this new restaurant will be well received and will produce
annual cash flows of $818, 000 per year forever (a perpetuity), while there is
a 45 percent chance of it producing a cash flow of only $206,000 per year
forever, (a perpetuity) if it isn’t well. The required rate of return you use
to discount the project cash flows is 10.3 percent. However, if the new
restaurant is successful, you will be able to build 15 more of them and they
will have costs and cash flows similar to the successful restaurant’s costs and
cash flows.
a.
In spite of the fact that the first restaurant has a negative NPV, should you
build it anyway? Why or Why not?
b. What is the
expected NPV for this project if only one restaurant is built but isn’t well
received? What is expected NPV for this project assuming 15 more are built if
the first restaurant is well received? (Ignore the fact that there would be a
time delay in building additional new restaurants
a. In spite of
the fact that the first has a negative NPV, should you build it anyway? Why or
Why not? (Select the best choice below.
A.
The company should not open the first restaurant, because if the company
does not open the first restaurant it will never know whether this type of
restaurant will be successful.
B.
The company should open the first restaurant, because the company has nothing
to lose should the concept fail.
C.
The company should not open the first restaurant, because companies should
never undertake risky investments.
14.
(Identifying spontaneous, temporary, and permanent sources of financing)
Classify each of the following sources of new financing as a spontaneous,
temporary, or permanent:
a. A
manufacturing firm enters into a loan agreement with its bank that calls for
annual principal and interest’s payments spread over the next four years.
b. A retail firm
orders new items of inventory that are charged to the firm’s trade credit.
c. A trucking
firm issues common stock to the public and used the proceeds to upgrade its
tractor fleet.
a. A
manufacturing firm enters into a loan agreement with its bank that calls for
annual principal and interest’s payments spread over the next four years.
This
source of financing can be classified as a (Spontaneous Financing,
Temporary Financing, or Permanent financing) .
15.
(Evaluating trade credit discounts) IF a firm buys on trade credit terms of
5/15, net 30 and decides to forgo the trade credit discount and pay on the net
day, what is the annualized costs of forgoing the discount (assume a 360-day
year)?
The
annualized costs of the trade credit terms of 5/15, net 30 is __________%
(Round to two decimal places.)
FIN370
MyFinanceLab Week-2 – Future Value (100% Correct)
1.
(Future value) Leslie Mosallam, who recently sold her Porsche, placed $ 10,000
in a savings account paying annual compound interest of 6 percent.
a. Calculate the amount of money that will accumulate if Leslie leaves the
money in the bank for 1, 5, 15 year(s).
b. Suppose Leslie moves her money into an account that pays 8 percent or one
that pays 10 percent. Rework part (a) using 8 percent and 10 percent.
c. What conclusions can you draw about the relationship between interest rates,
time, and future sums from the calculations you just did?
a.
After placing $10,000 in a savings account paying annual compound interest of 6
percent, the amount of money that will accumulate if Leslie leaves the money in
the bank for 1 year(s) is _________________________. (Round to the nearest
cent.)
2.
(Present value) Sarah Wiggum would like to make a single investment and have
$2.0 million at the time of her retirement in 35 years. She has found a
mutual fund that will earn 4 percent annually. How much will Sarah have to
invest today? If Sarah earned an annual return of 14 percent, how soon could
she retire?
a.
If Sarah can earn 4 percent annually for the next 35 years, the amount of money
she will have to invest today is $_________________(Round to the nearest cent.)
3.
(Solving for n) How many years will it take for $500 to grow to $991.99 if it’s
invested at 6 percent compounded annually?
The number of years it will take
for $500 to grow $991.99 at 6 percent compounded is _________years. (Round to
one decimal place.)
4. (Solving for i) Lance
Murdoc k purchased a wooden statue of a Conquistador for $7,600 to put in his
home office 7 years ago. Lance has recently married, and his home office is
being converted into a sewing room. His new wife, who has far better
taste than Lance, thinks the Conquistador is hideous and must go immediately.
Lance decided to sell it on e-Bay and only received %5,200 for it, and so he
took a loss on the investment. What was his rate of return, that is, the value
of i?
What was Lance Murdoc’s rate of
return, that is, the value of i? Enter a negative percentage for a loss
_______% (Round to two decimal
places.)
5. (Future value of an
ordinary annuity) What is the future value of $500 per year for 10 years
compounded annually at 5 percent?
The future value of $500
per year for 10 years compounded annually at 5 percent is $___________. (Round
to the nearest cent.)
6. (Present value of an
ordinary annuity) What is the present value of $2,500 per year for 8 years
discounted back to the present at 10 percent?
The present value of $2,500
per year for 8 years discounted back to the present at 10 percent is
$____________. (Round to the nearest cent.)
7. (Present value of a
growing perpetuity) What is the present value of a perpetual stream of cash
flows that pays $90,000 at the end of year one and then grows at a rate of 4%
per year indefinitely? The rate of interest used to discount the cash flows is
11%.
The present value of the growing
perpetuity is $___________. (Round to the nearest cent.)
8. (Present value of
complex cash flows) How much do you have to deposit today so that beginning 11
years from now you can withdraw $10,000 a year for the next 5 years (periods 11
through 15) plus an additional amount of $20,000 in the last year (period 15)?
Assume an interest rate of 6 percent.
The amount of money you have to
deposit today is $____________. (Round to the nearest cent.)
9. (Break-even analysis)
The Marvel Mfg. Company is considering whether or not to construct a new
robotic production facility. The cost of this new facility is $600, 000 and it
is expected to have a six-year life with annual depreciation expense of $100,
000 and no salvage value. Annual sales from the new facility are expected to be
2,000 units with a price of $1,000 per unity. Variable production costs are
$600 per unit, and fixed cash expenses are $80,000 per year.
a.
Find the accounting and the cash break-even units of production
b.
Will the plant make a profit based on its current expected level of operations
c.
Will the plant contribute cash flow to the firm at the expected level of
operations?
a.
The accounting break-even units of production is __________units. (Round to the
nearest whole number.)
10. (Break-even analysis)
Farrington Enterprises runs a number of sporting goods businesses and is
currently analyzing a new T-shirt printing business. Specifically, the company
is evaluating the feasibility of this business based on its estimates of unit
sales, the price per unit, variable cost per unit and fixed costs. The company
initial estimates of annual sales and other critical variables are shown below:
Unit sales
5,000
Price per unit
$12.00
Variable cost per
unit
$8.00
Fixed cash expense per
year
$10,000
Depreciation
expense
$5,000
a.
The accounting break-even units of production is ______________units. (Round to
the neares interger.)
11. (Financial forecasting)
Which of the following accounts would most likely vary directly with the level
of firm sales?
Cash
yes or no
Notes
payable
yes or no
Marketable
securities
yes
or no
Plant and
equipment
yes or no
Accounts
payable
yes or no
Inventories
yes
or no
Long-term
debt
yes or no
Will this account vary with sales
(cash)?
yes
or no
12. (Corporate income tax)
Meyer Inc. has taxable income (earnings before taxes) of $300,000. Calculate
Meyer’s federal income tax liability using the tax table shown below. What are
the firm’s average and marginal tax
Taxable
Income
Marginal Tax Rate
$0-$50,000
15%
$50,001-$75,000
25%
$75,001-$100,
000
34%
$100,001-$335,000
39%
$335,000-$10,000,000
34%
$10,000,000-$15,000,000
35%
$15,000,001-$18,333,333
38%
Over
$18,333,333
35%
The firm’s tax liability for the
year is $___________. (Round to the nearest dollar.)
13. (Working with the
balance sheet) The Caraway Seed Company grows heirloom tomatoes and sells their
seeds. The heirloom tomato plants are preferred by many growers for their
superior flavor. At the end of the most recent year the firm had current assets
of $50,000 net fixed assets of $250,000, current liabilities of $30,000, and
long term debt of $100,000.
a.
Calculate Caraway’s stockholders equity.
b.
What is the firm’s net working capital?
c.
If Caraway’s current liabilities consist of $20,000 in accounts payable and
$10,000 in short-term debt (notes payable), what is the firm’s net working
capital?
a.
Calculate Caraway’s stockholder’s equity.
Caraway’s stockholders’ equity is
$______________. (Round to the nearest dollar)
14. (Review of financial
statements) A scrambled list of accounts from the income statement and balance
sheet of Belmond, Inc. is found below:
Inventory
$6,540
Common
Stock
44,940
Cash
16,560
Operating
expenses
1,320
Short-term notes
payable
590
Interest
expense
940
Depreciation
expense
520
Sales
12,810
Accounts
receivable
9,620
Accounts
payable
4,840
Long-term
debt
55,060
Cost of goods
sold
5,760
Buildings and
equipment
122,190
Accumulated
depreciation
34,310
Taxes
1,430
General and administrative
expense
880
Retained
earnings
?
a.
How much is the firm’s net working capital?
b. Complete an income statement
and a balance sheet for Belmond.
c. If you were asked to respond to complete parts a. and b. as part of a
training exercise, what could you tell your boss about the company’s financial
condition based on your answers?
15. (Analyzing the quality
of firm earnings) Kabutell, Inc. had net income of $75,000, cash flow from
financing activities of $50,000, depreciation expenses of $50,000, and cash
flow from operating activities of $575,000.
a.
Calculate the quality of earnings ratio. What does this ration tell you?
b.
Kabutell, Inc. reported the following in its annual reports for 2011-2013:
($
million)
2011
2012
2013
Cash Flow from
Operations
$478
$403
$470
Capital Expenditures
(CAPEX)
$459
$447
$456
Calculate the average capital
acquisitions ratio over the three year period. How would you interpret these
results?
a.
What is Kabuutell’s quality of earnings ratio ______________% (Round to one
decimal place.)
Please check data of
each problem. If your data is different, correct data in Excel. As calculations
are formula based, answer will be updated automatically. Please check data of
each question with your data.
FIN370
Industry Averages and Financial Ratios – Wal-mart
Find a
publicly-traded company on Yahoo!® Finance by entering the company name in the
search bar. The company chosen will be Wal-Mart.
•
Wal-Mart
Locate
the SIC code for the company's industry by watching the video.
Find the
industry ratios for the company using the Dun & Bradstreet® Key Business
Ratio link in the University Library.
Assume
the inventory ratio is based on a traditional inventory system, but globalized
markets and the supply chain make it critical to adopt lean principles to
create a more efficient system. Discuss what a change to a Just- In- Time
inventory system would have if adopted.
Calculate
the financial ratios (show your calculations) for the company using Yahoo!®
Finance to locate its two most recent annual financial statements. Be careful
not to use quarterly information. Include the ratios for both years.
Compare
the ratios for the company you selected with the appropriate industry ratios
including profitability, solvency, and efficiency ratios shown on the D&B
Report.
Write a
350-word response about how the company you selected performed compared with
the industry.
1000+
words paper with references and calculation in excel.
The
assignment is to define a number of financial and supply chain terms and apply
them to their role in the financial world. Seventy percent of the grade is
based on content, which is all listed terms include definition and role in
finance or supply chain management. Thirty percent is based on mechanics, which
is ensuruing the paper paper—including tables and graphs, headings, title page,
and reference page—is consistent with APA formatting guidelines and meets
course-level requirements; intellectual property is recognized with in-text
citations and a reference page. Including, paragraph and sentence transitions
are present, logical, and maintain the flow throughout the paper. Sentences are
complete, clear, and concise.
Term
Definition Resource you used
Time
value of money
Efficient
market
Primary
versus secondary market
Risk-return
tradeoff
Agency
(principal and agent problems)
Market
information and security prices and information asymmetry
Agile and
lean principles
Return on
investment
Cash flow
and a source of value
Project
management
Outsourcing
and offshoring
Inventory
turnover
Just-in-time
inventory (JIT)
Vender
managed inventory (VMI)
Forecasting
and demand management
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