Homework answers / question archive / 1)A firm purchases merchandise on terms of 2/15, net 40 days

1)A firm purchases merchandise on terms of 2/15, net 40 days

Finance

Share With

1)A firm purchases merchandise on terms of 2/15, net 40 days. It does not take discounts, and it typically pays on time, 40 days after the invoice date. Net purchases amount to €784,000 per year. Assume a 365-day year, and note that purchases are net of discounts. What are the amounts of Free trade credit and Costly trade credit the firm receives during the year?

2)Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts, but is paying after 25 days instead of waiting until Day 30. You point out that the nominal cost of not taking the discount and paying on Day 30 is approximately 37%. But since your firm is neither taking discounts nor paying on the due date, what is the effective annual percentage cost of its non-free trade credit, using a 365-day year?

3)Dino Drilling recently reported $7,950 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $2,950 of outstanding bonds that carry a 6.25% interest rate, and its combined federal and provincial income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $800 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Dino Drilling generate? Oa. $2,049.00 Ob. $575.00 Oc. $2,750.00 O d. $1,525.00
You are an industry analyst for the energy sector. You are analyzing financial reports from two companies: Black Gold Corp. and New Energy Inc. Corporate tax for both firms is 35%. Your associate analyst has calculated and compiled in the following table, a list of important figures you need for the analysis: New Energy Inc. $ 102,000 EBIT Black Gold Corp. $ 278,800 $ 92,004 $ 1,224,000 $ 33.660 $ 636,480 Depreciation Total operating capital Net investment in operating capital WACC $ 612,000 $ 265,200 11.88% 11.85% What is the free cash flow and ROIC for the Black Gold Corp? $-198,900 and 10.42% $66,300 and 10.42% $-430,780 and 14.81% $181,220 and 14.81%.

4)what does it mean to manipulate capital stucture and why do firms do that