1 Williams & Sons last year reported sales of $31 million, cost of goods sold (COGS) of $24 and

an inventory turnove
The company is now adopting a new inventory system. If the new system
is able to reduce the firm's inventory level and increase the firm's inventory turnover
ratio to 6 while maintaining the same level of sales and COGS, how much cash will be freed up?
Do not round intermediate calculations. Round your answer to the nearest dollar.

So, we need the cash freed,. The way to do it is to calculate the difference of average inventory before and after new

That's the formula for it.

So, how do we calculate these average inventory?

We use: Inventory turnover = COGS/ Average inventory
Thus, Average inventory = COGS / Inventory turnover

So, when initially turn over ratio was 4, cogs is given to be 24 million

Thus, putting them in our formula ,we get:

Average inventory = 24 million / 4 = 6 million

Similarly under new inventory model,ratio is 6 but cogs remain same( given in question)

So, we get average inventory = 24 million/6 = 4million

Thus, cash freed up is the difference, which is 6 million - 4 million, which is 2million
$2,000,000

2 Medwig Corporation has a DSO of 38 days. The company averages $8,750 in sales each day (all customers take cre
What is the company's average accounts receivable? Round your answer to the nearest dollar.

This is a formula based problem

Account receivable = Days sales outstanding * Average credit sales per day

38 *8750 = $ 332,500.00

3 A large retailer obtains merchandise under the credit terms of 1/20, net 45, but routinely takes 65 days to pay its
(Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.)
What is the retailer's effective cost of trade credit? Assume 365 days in year for your calculations
Do not round intermediate calculations. Round your answer to two decimal places.
 If this looks confusing or scary, get in touch on chat, I ll break down the steps
Computation of Effective Cost of Trade Credit:

Effective Cost of Trade Credit= [(1+(Disc.%/100%-Disc.%)) ^ (365) / (Days Credit Outstand–Discount Period))] - 1

Effective Cost of Trade Credit= [(1+(1/100-1)) ^ (365) / (65–20)] - 1

Effective Cost of Trade Credit= [(1+0.0101) ^ (365) / (45)] - 1

Effective Cost of Trade Credit = [(1.0101) ^ 8.11] – 1

Effective Cost of Trade Credit = 1.084934 – 1

Effective Cost of Trade Credit = 0.084934

Effective Cost of Trade Credit = 8.49%

4 A chain of appliance stores, APP Corporation, purchases inventory with a net price of $200,000 each day.
The company purchases the inventory under the credit terms of 1/15, net 30. APP always takes the discount, but
What is the average accounts payable for APP? Round your answer to the nearest dollar

Now this might look complex, but only pay attention to what you need to calculate, it is APP, means Average accoun

Now, this has a formula, just use that and you are good to go:

Average accounts payable = net inventory price * days of discount period

200000*15 ( we got 15 from 1/15, whatever number is there in 1/n is your days of discount period
$ 3,000,000.00

5 At today's spot exchange rates 1 U.S. dollar can be exchanged for 10 Mexican pesos or for 111.66 Japanese yen.
You have pesos that you would like to exchange for yen. What is the cross rate between the yen and the peso;
that is, how many yen would you receive for every peso exchanged? Round your answer to two decimal places.

Cross Rate between Yen and Peso

i.e. Yen/Peso = (Yen/Dollar)*(Dollar/Peso) (again, do let me know if you don’t get this part, we can break

(111.66)*(1/10) = 11.166

Yen 11.17/Peso
 Hence, Yen received for every Peso = Yen 11.17

6 The nominal yield on 6-month T-bills is 8%, while default-free Japanese bonds that mature in 6 months have a nom
In the spot exchange market, 1 yen equals $0.007. If interest rate parity holds, what is the 6-month forward excha
Round the answer to five decimal places. Do not round intermediate calculations.

Interest rate parity holds that investors should earn the same return on interest-bearing investments in all countries
It recognizes that when you invest in a country other than your home country, you are affected by two forces- retur
It follows that your overall return will be higher than the investment's stated return if the currency in which your inv
The relationship between spot and forward exchange rates and interest rates, which is known as interest rate parity,

Forward exchange rate / Spot exchange rate = (1 + rh)/ (1+rf)

where rf is the default free interest rate

rh is the interest rate of the home country

rf is calculated as

rf = 5.5%/2
= 2.75% (Because 180days is one-half of 360-day year)
rh = 8% / 2
4% (Because 180 days is one-half of 360-day year)

Given that the spot exchange rate is $0.007

Substituting the values in the above equation, we get

Forward exchange rate/ $0.007 = (1+ 0.04) / (1+0.0275)

Forward exchange rate = [(1.04) / (1.0275)] * $0.007
Forward exchange rate = 1.012165* $0.007
$ 0.00708516

Therefore, the forward exchange rate (ft) = $0.00709

7 A computer costs $560 in the United States. The same model costs 650 euros in France.
If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? Do not round i
Round your answer to two decimal places.

Given,

A computer costs $560 in the United States

 The same model costs 650 Euros in France.

Purchasing power parity holds,

The formula for spot exchange rate is given by,

Spot Rate = Ph/Pf

Where,

Ph: Price at Home (Here, price in the United States) = $560

Pf: Price in foreign(Here, price in France ) = 650 Euros

SpotRate: 560/650

Spot Rate = 0.861538

Rounding off to two decimal places

SpotRate 0.86

Means 1$ = 0.86 Euro

8 If euros sell for $1.60 (U.S.) per euro, what should dollars sell for in euros per dollar? Round your answer to two d

euros per dollar

1 euro= 1.60 $

1 dollar= 1/1.60 euro

0.625

1 dollar = .63 euro

.63 euros per dollar

of $24 and an inventory turnover ratio of 4.

be freed up?

e inventory before and after new system

each day (all customers take credit).

arest dollar.

utinely takes 65 days to pay its bills.

its credit terms.)
ur calculations
stand–Discount Period))] - 1

of $200,000 each day.

always takes the discount, but takes the full 15 days to pay its bills.

it is APP, means Average accounts payable

is your days of discount period

s or for 111.66 Japanese yen.

ween the yen and the peso;
nswer to two decimal places.

on’t get this part, we can break it down on chat freely.)

t mature in 6 months have a nominal rate of 5.5%.
at is the 6-month forward exchange rate?

ring investments in all countries aftere adjusting for risk.

are affected by two forces- return on the investment itself and changes in the exchange rates.
if the currency in which your investment is denominated appreciates relative to your home currency. Likewise, your overall return will be l
h is known as interest rate parity, is expressed in the following equation:

o and the dollar? Do not round intermediate calculations.

 0.62500

ar? Round your answer to two decimal places.

wise, your overall return will be lower if the foreign currency you receive declines in value.
$1 = euros