Anonymous

Only if the added profitability of the additional sales to the deadbeats (less bad debt loss and other costs) does not exceed the required return on the additional (and prolonged) investment in accounts receivable should the firm cease sales to these customers. Some firms (such as jewelry or audio equipment dealers) are very happy to sell to almost any deadbeat because their margins are very high. 2. a) Sales unaffected profits decreased. This policy suggests that the firm has a poor...

Info

Northern California Interest Coverage 100,000 45,000 2.22 The question of with which company one feels more comfortable depends on the business risk. Inasmuch as an electric utility has stable cash flows and Northern California is large, it is no doubt the safer loan despite the lower coverage ratios. The fact that the debt service coverage ratio is 1.0 means that some of the debt will probably have to be renewed or rolled over at maturity. However, this is typical for an electric utility....

Capital Budgeting Techniques

These hieroglyphics have evidently a meaning. If it is a purely arbitrary one, it may be impossible for us to solve it. If on the other hand, it is systematic, I have no doubt that we shall yet get to the bottom of it SHERLOCK HOLMES IN THEADVE1NTURE OFTHEDA1NCI1NGME1N 1. The time value of money refers to the fact that money has an opportunity cost, i.e., its reinvestment rate. Given a positive interest rate, a dollar invested today will yield more that one dollar in the future. Thus, capital...

Benjamin Franklin

Trade credit from suppliers is spontaneous because there is no formal negotiation for the funds. By merely purchasing merchandise on credit, funds are acquired. 2. The reasons trade credit from suppliers is used to finance temporary working capital are as follows a Firms may be erroneously calculating the cost of this financing for, say, 60 days as the annual cost. Therefore, 2 10, net 60 is calculated as only 2 rather than 2 98 365 50 14.9 . b It may be that firms prefer the convenience of...

Abraham Brilloff

The purpose of a balance sheet is to present a picture of the firm's financial position at one moment in time. The income statement, on the other hand, depicts a summary of the firm's profitability over time. 2. By analyzing trends, one is able to determine whether there has been improvement or deterioration in the financial condition and performance of a firm. This is particularly useful in the prediction of insolvency and the taking of remedial steps before insolvency can occur. 3....

The Time Value of Money

The chief value of money lies in the fact that one lives in a world in which it is overestimated. H.L. MENCKEN From AMencken Chrestomathy 1. Simple interest is interest that is paid earned on only the original amount, or principal, borrowed lent . 2. With compound interest, interest payments are added to the principal and both then earn interest for subsequent periods. Hence interest is compounded. The greater the number of periods and the more times a period interest is paid, the greater the...

Fundamentals of Financial Management

Wachowicz JR. Lecturers adopting the main text are permitted to photocopy the book as required. Harlow, England London New York Boston San Francisco Toronto Sydney Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan and Associated Companies throughout the world Visit us on the World Wide Web at www.pearsoned.co.uk Previous editions published under the Prentice-Hall imprint Twelfth edition published under the...

The Valuation of Long Term Securities

WWiat is a cynic A man who knows the price of everything and the value of nothing. 1. The market value of a firm is the market price at which the firm trades in an open marketplace. This value is often viewed as being the higher of the firm's liquidation value i.e., amount that could be realized if the firm's assets are sold separately from its operating organization or going-concern value i.e., amount a firm could be sold for as a continuing business . 2. The intrinsic value or economic value...

The Role of Financial Management

Increasing shareholder value over time is the bottom line of every move we make. ROBERT GOIZUETA FormerCEO, The Coca-Cola Company 1. With an objective of maximizing shareholder wealth, capital will tend to be allocated to the most productive investment opportunities on a risk-adjusted return basis. Other decisions will also be made to maximize efficiency. If all firms do this, productivity will be heightened and the economy will realize higher real growth. There will be a greater level of...