REVIEW OF THE PROBLEMS OF 3rd PART TOPIC 9 (a)
2.01 – 2.02 – 2.03 – 2.04 – 2.05 – 2.06 – 2.07 – 2.08 – 2.09 -
REVIEW_2.01(a).- A firm has five alternative projects of investment. Calculate the Payback and put in order the projects according to this criteria REVIEW 2.02 SOLUTION 2.01
Projects |
Initial outlay |
1st year |
2nd year |
3rd year |
|||
Collections |
Payments |
Collections |
Payments |
Collections |
Payments |
||
A |
135,000 |
160,000 |
30,000 |
150,000 |
35,000 |
65,000 |
25,000 |
B |
135,000 |
200,000 |
50,000 |
90,000 |
80,000 |
50,000 |
30,000 |
C |
135,000 |
70,000 |
40,000 |
90,000 |
50,000 |
110,000 |
60,000 |
D |
135,000 |
30,000 |
80,000 |
30,000 |
40,000 |
270,000 |
70,000 |
E |
135,000 |
120,000 |
20,000 |
85,000 |
43,300 |
50,000 |
20,000 |
F |
135,000 |
110,000 |
20,000 |
100,000 |
100,000 |
80,000 |
15,000 |
PBA = See solution; PBB = x y, 10 m and 24 d; PBC = See solution; PBD = x y, 11 m and 21 d; PBE = See solution; PBF = x y, 8 m y 9 d
REVIEW_2.02(a).- The Manufactures of the Bay's manager wants to improve the productivity of his firm, therefore, he wants to know the firm's cash conversion cycle before of the beginning of the program of improving. Calculate the information that the manager needs related to the cash conversion cycle if the data are the following (averages of the period and in million of pesetas): OUTCOME: CCC = 208.31 days REVIEW 2.03 SOLUTION 2.02
ITEMS |
AMOUNTS |
Sales cost |
3,530 |
Total cost of production |
5,409 |
Average raw material stock |
357 |
Average finished goods stock |
589 |
Material purchases |
2,345 |
Total sales |
5,792 |
Average goods in process stock |
987 |
Average receivables stock |
400 |
REVIEW_2.03(a).- The firm QQQ has a Share Capital of 1,459.548€ divided in 121,600 shares. The shares quote in the Stock Market at 95% and the expected annual dividends are 4.58€. The annual interest rate of the market is 10%. Calculate the nominal value, the market value and the theoretical value of the shares of the corporation REVIEW 2.04 SOLUTION 2.03
Nominal value = 12.00€/share
Market value = 11.40€/share
Theoretical value = 45.80€/share
REVIEW_2.04(a).- A project of investment had an initial outlay of 150,000€ and the cash flows of the first and second years were 60,000€ and 80,000€, respectively. Calculate the cash flow of the third year, knowing that the Payback was 2 years and 11 months REVIEW 2.05 SOLUTION 2.04
X = 10,909.09€
REVIEW_2.05(a).- A building firm with 3,120,000€ of Share Capital made up of 115,000 shares, has obtained a distributing profit of 1,230,000€ at the end of the year and it has created reserves of 73,000€. Determine: REVIEW 2.06 SOLUTION 2.05
The nominal value of the shares
The theoretical value of the shares
The distributed dividend per share
The Net worth
Nominal value = 27.3€/share
Theoretical value = 27.77€/share
Distributed dividend per share = 10.70€/share
Net worth = 3,193,000€
REVIEW_2.06(a).- The firm “Babe Apples” markets apple trees to nurseries. Its Share Capital is divided in 37,500 shares of 25.70 m.u. each one. The firm quotes in the Stock Market at 24.30 m.u./share and it has reserves of 70,000 m.u. REVIEW 2.07 SOLUTION 2.06
Calculate the amount of the Share Capital
Determine if the shares quote under par, over par or at par
Calculate the theoretical value of each share
Share capital = 963,750 m.u.
The shares quote . . . par
Theoretical value = 27.57 m.u.
REVIEW_2.07(a).- A firm plans to make a project of investment to acquire a machine valued in 100,000€. The project lasts four years. The planned revenue for each year with the acquisition of this new machine are: 22,000€; 31,000€; 40,500€ and 57,000€ respectively. The planned operating expenses appear in the following table. The interes rate is 0.9%; the salvage value is 13,000€ and the tax on profits is 25%. You must decide if the investment is a good idea for the firm or not, according to the Net Present Value (NPV). OUTCOME: NPV = -22,497.01€ SOLUTION 2.07
EXPENSES |
1st year |
2nd year |
3rd year |
4th year |
Labour |
8,400 |
9,100 |
11,000 |
17,500 |
Raw material |
1,200 |
1,500 |
1,200 |
1,800 |
General expenses |
800 |
1,000 |
1,500 |
2,300 |
REVIEW_2.08(a).- We have a project of investment with the following data:
R0 = 50 m.u. F1 = 60 m.u. F3 = 10 m.u.
The interest rate is 40%; we want to know:
The net present value
Is it acceptable the investment?
OUTCOME: NPV = -3,5 SOLUTION 2.08
REVIEW 2.09.- A firm wants to expand its market to Extremadura. In order to do that, it must buy new machinery for an amount of 100,000 €.
The expected annual cash flow which are paid at the end of each year for Extremadura for the first year is 40,000 €, increasing at a rate of 5% each year till the third year.
If the interest rate is 20%:
We want to know: OUTCOME: Cash flows: 1st year = 40,000; 2nd year = 42,000 and 3rd year = 44,100; NPV = -11,979.17 SOLUTION 2.09
The expected cash flows
The NPV of the project
Is it accpetable to expand the activity to Extremadura?
SOLUTION 2.01(a).- REVIEW 2.01
PROYECT |
INITIAL OUTLAY |
CASH FLOW 1st YEAR |
CASH FLOW 2nd YEAR |
CASH FLOW 3rd YEAR |
---|---|---|---|---|
A |
135,000 |
130,000 |
115,000 |
40,000 |
B |
135,000 |
150,000 |
10,000 |
20,000 |
C |
135,000 |
30,000 |
40,000 |
50,000 |
D |
135,000 |
-50,000 |
-10,000 |
200,000 |
E |
135,000 |
100,000 |
41,700 |
30,000 |
F |
135,000 |
90,000 |
0 |
65,000 |
Proyect A.-
12 m ------- 115,000
x m -------- 5,000
x = 5,000 x 12 : 115,999 = 0.52 m
1.00 m ---------- 30 d
0.52 m ---------- x d
x = 0.52 x 30 : 1 = 15.6 d = 16 d
PBA = 1 y and 16 d
Proyect B.-
12 m ------- 150,000
x m ------- 135,000
x = 135,000 x 12 : 150,000 = 10.80 m
1 m ------- 30 d
0.80 m ------- x d
x = 0.80 x 30 : 1 = 24 d
PBB = 10 m and 24 d
Proyect C.- This project is not recovered
Proyect D.-
12 m ------- 200,000
x m ------- 195,000
x = 195,000 x 12 : 200,000 = 11.70 m
1 m ------- 30 d
0.70 m ------- x d
x = 0.70 x 30 : 1 = 21 d
PBD = 2 y, 11 m and 21 d
Proyect E.-
12 m ------- 41,700
x m ------- 35,000
x = 35,000 x 12 : 41,700 = 10.07 m
1 m ------- 30 d
0.07 m ------- x d
x = 0.07 x 30 = 2.1 d
PBE = 1 y, 10 m and 2 d
Project F.-
12 m ---------------------- 65,000
x m ---------------------- 45,000 x = 8.31 m
1.00 m -------------------------- 30 d
0.31m --------------------------- x d x = 9.3 d = 9 d
PBF = 2 y, 8 m and 9 d
According to this criteria the order would be (from the best one to worst one): B – A - E – F – D and C
SOLUTION 2.02(a).- REVIEW 2.02
Raw material rotation = 2,345 : 357 = 6.57
Raw material conversion period = 365 : 6.57 = 55.56 d
Goods in process rotation = 5,409 : 987 = 5.48
Goods in process conversion period = 365 : 5.48 = 66.61 d
Finished goods rotation = 3,530 : 589 = 5.99
Finished goods conversion period = 365 : 5.99 = 60.93 d
Payment from customers rotation = 5,792 : 400 = 14.48
Receivables conversion period = 365 : 14.48 = 25.21 d
CCC = 55.56 + 66.61 + 60.93 + 25.21 = 208.31 d
SOLUTION 2.03(a).- REVIEW 2.03
NV = 1,459,548 : 121,600 = 12€
MV = 12 x 0.95 = 11.40€
TV = 4.58 : 0.1 = 45.8€
SOLUTION 2.04(a).- REVIEW 2.04
11 m ------- 10,000
12 m ------- x
X = 12 x 10.000 : 11 = 10,909.09€
SOLUTION 2.05(a).- REVIEW 2.05
NV = 3,120,000 : 115,000 = 27.12€
TV = (3,120,000 + 73,000) : 115,000 = 27.77€
Div = 1,230,000 : 115,000 = 10.70€
Net worth = 3,120,000 + 73,000 = 3,193,000€
SOLUTION 2.06(a).- REVIEW 2.06
Share Capital = 37,500 x 25.70 = 963,750€
The shares quote under par
Theoretical value = (963,750 + 70,000) : 37,500 = 27.57€
SOLUTION 2.07(a).- REVIEW 2.07
Initial outlay |
Cash flows 1st year |
Cash flows 2nd year |
Cash flow 3rd year |
Cash flows 4th year |
---|---|---|---|---|
100,000 |
|
|
|
+13,000 |
|
+22,000 |
+31,000 |
+40,500 |
+57,000 |
|
-10,400 |
-11,600 |
-13,700 |
-21,600 |
|
-2,900 |
-4,850 |
-6,700 |
-12,100 |
TOTALS |
8,700 |
14,550 |
20,100 |
36,300 |
Profit 1st year = 22,000 – 10,400 = 11,600
Profit 2nd year = 31,000 – 11,600 = 19,400
Profit 3rd year = 40,500 – 13,100 = 26,800
Profit 4th year = 13,000 + 57,000 – 21,600 = 48,400
Taxes 1st year = 11,600 x 0.25 = 2,900
Taxes 2nd year = 19,400 x 0.25 = 4,850
Taxes 3rd year = 26,800 x 0.25 = 6,700
Taxes 4th year = 48,400 x 0.25 = 12,100
NPV = -100,000 + 8,700 : 1.009 + 14,550 : 1.0092 + 20,100 : 1.0093 + 36,300 : 1.0094 = - 22,497.01€
The project isn't interesting because we are lossing money
SOLUTION 2.08(a).- REVIEW 2.08
NPV = - 50 + (60 : 1.4) + (10 : 1.43) = - 50 + 42.86 + 3.64 = -3.5
It isn't acceptable because the NPV is negative
a-)
Cash flow 1st year = 40,000 €
Cash flow 2nd year = 40.000 x 1.05 = 42,000 €
Cash flow 3rd year = 40,000 x 1.052 = 44,100 €
b-)
NPV = -100,000 + (40,000 : 1.2) + (42,000 : 1.22) + (44,100 : 1.23) = -11,979,17 €
c-)
It isn't acceptable to expand the activity to Extremadura