Brealey−Meyers: Back Matter Appendix B Answers to © The McGraw−Hill
Principles of Corporate Quizzes Companies, 2003
Finance, Seventh Edition
APPENDIX B Answers to Quizzes 1037
6. a. Table 30.2: Bank loans c. Payment float increases. The bank’s gross ledgerH11005 3, Cash H11005 8, Current as-
sets balance and available balance increase by theH11005 68, Current liabilities H11005 30, Total assets H11005
Total liabilities and net worth same amount.H11005 118. Table 30.4:
Repaid short-term bank loan H11005 2, Increase in cash
2. a. The $.40 per check fee is cheaper at 300 H11003 .40 H11005
balance H11005 4. Tables 30.5 and 30.6 unchanged.
$120 per day. The cost of putting up $800,000 of
b. Table 30.2: Long-term debt H11005 22, Gross investment
compensating balances is .09 H11003 800,000 H11005
H11005 82, Net fixed assets H11005 62, Cash H11005 3, Total assets
$72,000 per year, or 72,000/365 H11005 $197 per day.
H11005 Total liabilities and net worth H11005 125. Table 30.4:
b. The lock-box system costs $120 per day, or $43,800
Issued long-term debt H11005 17, Total sources H11005 41, In-
per year. You would need $486,700 additional
vested in fixed assets H11005 26, Total uses H11005 42, In-
cash to generate this much interest. Thus, the lock-
creases in cash balance H11005 H110021. Table 30.5: Fixed and
box system must generate at least this much cash.
Total assets change as in Table 30.2, as do Long
The cash flow is 300 H11003 1,500 H11005 $450,000 per day.
term debt and Total liabilities and net worth. Table
Thus the lock box must speed up average collec-
30.6: same changes as in Table 30.4, except In-
tion time by 486,700/450,000 H11005 1.08 days.
crease in net working capital H11005 6.
3. Payment float; availability float; net float; concentra-
c. Table 30.3: Operating costs H11005 289, Pretax income
tion banking; FEDWIRE; CHIPS; lock-box banking.
H11005 56, Net income H11005 28, Retained earnings H11005 27.
Table 30.2: Net worth
4. The formula for optimal order size is
H11005 92, Total liabilities and net
worth H11005 Total assets H11005 131; Inventory H11005 22.5,
Q H11005 212 H11003 sales H11003 cost per order2/carrying cost
Cash H11005 23.5. Table 30.5: Net worth H11005 92, Long-
term liabilities and net worth
H11005 212 H11003 216 H11003 22/6 H11005 2144 H11005 12 books.
H11005 Total assets H11005 104,
Net working capital
Everyman should place 216/12 H11005 18 orders a year
H11005 54. Table 30.6: Net income
and its average inventory should be 12/2 H11005 6 books.
H11005 28, increase in Net working capital H11005 24.
d. Table 30.7: Third quarter, Total collections H11005
5. The formula gives
120.1, Ending receivables H11005 26.6. Fourth quarter,
Total collections
12 H11003 annual cash disbursements2
H11005 129.5, Ending receivables H11005
Q H11005
28.1. Table 30.8, Third quarter: Sources minus
B H11003 1cost per sale of securities2/interest rate
uses and Cash at end of period increase by 11.6,
H11005 212 H11003 20,000 H11003 22/.02 H11005 24,000,000
Cumulative financing required decreases by
11.6. Fourth quarter: Sources minus uses in-
H11005 $2,000.
crease by 1.5, Cumulative financing required de-
Everyman should sell securities 20,000/2,000 H11005 10
creases by 13.1 to
times a year and its average cash balance should be
H1100212.6.
e. Table 30.8: Labor, etc.
2,000/2 H11005 $1,000.
H11005 26, Sources minus uses
decrease by 4 in each quarter. Cumulative fi- 6. (a) Less; (b) less; (c) invest the same amount; (d) more.
nancing required decreases by 4 in first quarter,
7. Price H11005 100 H11002 (182/360)1.75 H11005 99.115. Compound
8 in second, etc.
annual return H11005(100/99.115)
2
H11002 1 H11005.0179, or 1.79%.
f. Table 30.8: Other sources of cash increase by 10
8. (a) Repurchase agreements; (b) commercial paper; (c)
in the second quarter, increasing Sources mi-
finance company commercial paper; (d) medium-
nus uses and decreasing Cumulative financing
term notes; (e) 3-month bills; (f) Treasury bills; (g)
required.
Treasury bills.
g. Table 30.8: Minimum operating cash balance H11005 2,
Cumulative financing required decreases by 2 in
9. Only 30% of the floating-rate preferred dividend is
all quarters.
taxed versus 100% of bond interest. The fixed-
dividend preferred also has this advantage but its price
7. (a) True; (b) false (borrower has a call); (c) true; (d)
fluctuates more than the floating-rate preferred’s.
false (100/90 H11002 1 H11005 .111, or 11.1%); (e) true.
8. (a) Line of credit; (b) commitment fee; (c) floating
Chapter 32
charge; (d) collateral; (e) warehouse receipt; (f)
commercial paper; (g) medium-term notes.
1. a. 1% of $1,000 H11005 $10.
b. 1% for 30 days H11005 12.2% per annum simple inter-
est or 12.9% compound interest.
Chapter 31
c. (i) Shorter; (ii) longer; (iii) shorter.
1. a. Payment float H11005 $25,000. Availability float H11005 2. a. Due lag decreases, therefore pay lag decreases;
$75,000. b. Due lag increases, therefore pay lag increases;
b. It can earn interest on these funds. c. Terms lag increases, therefore pay lag increases.
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