Expert answer:Week 5 Question and Problem Sets

Expert answer:Purpose of AssignmentStudents should understand the operating and cash cycles of a company, the mechanics in preparing a cash budget, the use of exchange rates and interest rate parity in international finance and valuation of a company in a merger and acquisition.Assignment Steps Resources: Tutorial help on Excel® and Word® functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products. Complete the following Questions and Problems from each chapter as indicated. Show all work and analysis.Prepare in Microsoft® Excel® or Word. Ch. 18: Questions 3 & 11 (Questions and Problems section)Ch. 20: Questions 8 & 14 (Questions and Problems section)Ch. 21: Questions 4 & 7 (Questions and Problems section)Ch. 26: Questions 1 & 2 (Questions and Problems section): Microsoft® Excel® template provided for Problem 2Format your assignment consistent with APA guidelines if submitting in Microsoft® Word.
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QUESTIONS:
3. Changes in the Operating Cycle [LO1] Indicate the effect that the following will have on the
operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, and the
letter N for no change:
a. Average receivables goes up.
b. Credit repayment times for customers are increased.
c. Inventory turnover goes from 3 times to 6 times.
d. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f. Payments to suppliers are accelerated.
8. Size of Accounts Receivable [LO1] The Arizona Bay Corporation sells on credit terms of net 30. Its
accounts are, on average, four days past due. If annual credit sales are $9.75 million, what is the
company’s balance sheet amount in accounts receivable?
4. Using Spot and Forward Exchange Rates [LO1] Suppose the spot exchange rate for the
Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.11.
a. Which is worth more, a U.S. dollar or a Canadian dollar?
b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if
the price in Canada is Can$2.50? Why might the beer actually sell at a different price in the
United States?
c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?
d. Which currency is expected to appreciate in value?
e. Which country do you think has higher interest rates—the United States or Canada?
Explain.
7. Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $30 million to invest for
three months. The interest rate in the United States is .31 percent per month. The interest rate in Great
Britain is .34 percent per month. The spot exchange rate is £.573, and the three-month forward rate is
£.575. Ignoring transaction costs, in which country would the treasurer want to invest the company’s
funds? Why?
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