Managerial Finance II Assignment 4

Anonymous
timer Asked: Dec 27th, 2018
account_balance_wallet $10

Question description

Part A: Cost of Debt

Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and an 8% coupon rate with semiannual payments.

a. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? Show your work.

1. $920

2. $1,000

3. $1,080

4. $1,173

b. What do you notice about the price and cost of debt? Answer in complete sentences.

Part B: Comparing NPV and IRR

Chandler and Joey were having a discussion about which financial model to use for their new business. Chandler supports NPV, and Joey supports IRR. The discussion starts to get heated when Ross steps in and states, “Gentlemen, it doesn’t matter which method we choose, they give the same answer on all projects.” Ross is partially right, since NPV and IRR both reject or both accept the same projects under certain conditions.

Explain under what three conditions NPV and IRR will be consistent when accepting or rejecting projects.

Part C: Production Cash Outflow

The Creative Products Corporation produces its products two months in advance of anticipated sales and ships to warehouse centers the month before sale. The inventory safety stock is 15% of the anticipated month’s sale. Beginning inventory in October 2017 was 120,000 units. Each unit costs $1.50 to make. The average selling price is $2.50 per unit. The cost is made up of 60% labor, 30% materials, and 10% shipping (to the warehouse). Labor is paid the month of production, raw materials the month prior to production, and shipping the month after production. Assume that the sales forecast for December 2017 is $2,500,000.

What is the production cash outflow for the month of October 2017 production and in what months does each occur? Show your work and solve for

1. Cost of production

2. Labor cost

3. Shipping

4. Material cost

Assignment 4 answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be four (4) pages in length; refer to the "Assignment Format" page for specific format requirements. Respond to the items below. Part A: Cost of Debt Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and an 8% coupon rate with semiannual payments. a. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? Show your work. 1. $920 2. $1,000 3. $1,080 4. $1,173 b. What do you notice about the price and cost of debt? Answer in complete sentences. Part B: Comparing NPV and IRR Chandler and Joey were having a discussion about which financial model to use for their new business. Chandler supports NPV, and Joey supports IRR. The discussion starts to get heated when Ross steps in and states, “Gentlemen, it doesn’t matter which method we choose, they give the same answer on all projects.” Ross is partially right, since NPV and IRR both reject or both accept the same projects under certain conditions. Explain under what three conditions NPV and IRR will be consistent when accepting or rejecting projects. Part C: Production Cash Outflow The Creative Products Corporation produces its products two months in advance of anticipated sales and ships to warehouse centers the month before sale. The inventory safety stock is 15% of the anticipated month’s sale. Beginning inventory in October 2017 was 120,000 units. Each unit costs $1.50 to make. The average selling price is $2.50 per unit. The cost is made up of 60% labor, 30% materials, and 10% shipping (to the warehouse). Labor is paid the month of production, raw materials the month prior to production, and shipping the month after production. Assume that the sales forecast for December 2017 is $2,500,000. What is the production cash outflow for the month of October 2017 production and in what months does each occur? Show your work and solve for 1. Cost of production 2. Labor cost 3. Shipping 4. Material cost

Tutor Answer

Super_Teach12
School: Rice University

Attached.

1

Managerial Finance II Assignment 4
Name
Affiliation
Date

2

Introduction
Debt financing should always be cheaper as compared to the equity cost, then only the
leverage will be help in profitability (Ward, 2018).
In today's scenario, 3 months labor and 2 years treasury are in range of 1.3% to 2.4%,
which shows the debt financing from banks or other financial institutions will be lower, if the
business is generating an ROE of over 6% you can go for the maximum leverage well in limits
so that you can meet to interest expenses with your operating/free cash flow (Ward, 2018).
Banks have become highly competitive, and offer good senior debt options along with
some revolving facility. T...

flag Report DMCA
Review

Anonymous
Good stuff. Would use again.

Similar Questions
Hot Questions
Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors