The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers

PR 24-5B The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Network Equipment Division Personal Computing Division
Sales $1,400,000 $1,120,000
Cost of goods sold 845,000 690,000
Operating expenses 345,000 206,000
Invested assets 1,000,000 1,400,000

1. Prepare condensed divisional income statements for the year ended December 31, 2010, assuming that there were no service department charges. Enter all amounts as positive numbers.

2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. Round investment turnover to one decimal place. Do not enter in the percent sign.

3. If management's minimum acceptable rate of return is 14%, determine the residual income for each division. If required, use the minus sign to indicate a negative.

4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3). The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Check: 2. Network Equipment Division ROI, 21%

Click here for the solution: The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers

You are the vice-president of finance for Exploratory Resources, headquartered in Houston, Texas

You are the vice-president of finance for Exploratory Resources, headquartered in Houston, Texas. In January 2007, your firm’s Canadian subsidiary obtained a six-month loan of 100,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. $0.8180/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 2007 contract (Face value = $100,000 per contract) was quoted at U.S. $0.8120/Canadian dollar.

a. Explain how the Houston bank could lose on this transaction assuming no hedging.
b. If the bank does hedge with the forward contract, what is the maximum amount it can lose

Click here for the solution: You are the vice-president of finance for Exploratory Resources, headquartered in Houston, Texas

(Assessing Roche Publishing Company’s Cash Management Efficiency) Lisa Pinto, vice president of finance at

Assessing Roche Publishing Company’s Cash Management Efficiency

Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts, is concerned about the firm’s high level of short-term resource investment. She believes that the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Bessenoff, the treasurer, with assessing the firm’s cash management efficiency. Arlene decided to begin her investigation by studying the firm’s operating and cash conversion cycles.

AND SO ON

Roche Publishing Company is currently spending $12,000,000 per year on its operating-cycle investment, but it expects that initiating a cash discount will increase its operating-cycle investment to $13,100,000 per year. (Note: The operating-cycle investment per dollar of inventory, receivables, and payables is assumed to be the same.) Arlene’s concern was whether the firm’s cash management was as efficient as it could be. Arlene knew that the company paid 12% annual interest for its resource investment and therefore viewed this value as the firm’s required return. For this reason, she was concerned about the resource investment cost resulting from any inefficiencies in the management of Roche’s cash conversion cycle. (Note: Assume a 365- day year.)

To Do

a. Assuming a constant rate for purchases, production, and sales throughout the year, what are Roche’s existing operating cycle (OC), cash conversion cycle (CCC), and resource investment need?

b. If Roche can optimize operations according to industry standards, what would its operating cycle (OC), cash conversion cycle (CCC), and resource investment

need be under these more efficient conditions?

c. In terms of resource investment requirements, what is the annual cost of Roche’s operational inefficiency?

d. Evaluate whether Roche’s strategy for speeding its collection of accounts receivable would be acceptable. What annual net profit or loss would result from implementation of the cash discount?

e. Use your finding in part d, along with the payables and inventory costs given, to determine the total annual cost the firm would incur to achieve the industry level of operational efficiency.

f. Judging on the basis of your findings in parts c and e, should the firm incur the annual cost to achieve the industry level of operational efficiency? Explain why or why not.

Click here for the solution: (Assessing Roche Publishing Company’s Cash Management Efficiency) Lisa Pinto, vice president of finance at

Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle

Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle. They are co-directors of the company’s pension fund management division, with Strother having responsibility for fixed income securities (primarily bonds) and Tibbs being responsible for equity investments. A major new client, the Northwestern Municipal League, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them.

To illustrate the common stock valuation process, Strother and Tibbs have asked you to analyze the Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporarily heavy workloads. You are to answer the following questions.

a. Describe briefly the legal rights and privileges of common stockholders.

AND SO ON

p. Temp Force recently issued preferred stock. It pays an annual dividend of $5, and the issue price was $50 per share. What is the expected return to an investor on this preferred stock?

Click here for the solution: Sam Strother and Shawna Tibbs are senior vice presidents of the Mutual of Seattle