finance questions 76

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Review Questions:

  • Describe the differences among the following three types of orders: market, limit and stop loss.
  • What is a short sale?
  • Describe buying on margin.
  • Why is it Illegal to trade on insider information?
  • What is the “interest rate” and how is it determined?

Homework 2:

Complete the following homework scenario:

  • Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.

    First, consider Lisa’s savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 and then left full time work to have children and be a stay at home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65.

    Bob started his IRA at age 32. The first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $2,000 contribution to an IRA, and contributed $2,000 every year up until age 65, a total of 33 years / contributions. He plans to retire at age 65 and make withdrawals from his IRA.

    Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.

  • Write a two to three (2-3) paragraph summary in which you:
    • Create a chart summarizing the details of the investment for both Bob and Lisa.
    • Explain the results in terms of time value of money.

Homework 3:

Problem 1: Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days and the firm receives 40 days of credit on its purchases from suppliers.

  • Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn over in a year?
  • Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?

Problem 2: A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise, the bill is due at the end of 60 days. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? Explain your answer.

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