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4. The Greek Connection had sales of \$32 million in 2012, and a cost of goods sold of \$20 million. A simplified balance sheet for the firm appears below:
THE GREEK CONNECTION
Balance Sheet
As of December 31, 2012 (in \$ thousand)
Assets Liabilities and Equity
Cash \$ 2,000 Accounts payable \$ 1,500
Accounts receivable 3, 950 Notes payable 1000

Inventory 1,300 Accruals 1,220
Total Current Assets \$7,250 Total Current Liabilities \$3720
Long Term Debt 3000
Net plant, property, Total liabilities \$ 6,720
and equipment \$ 8,500 Common equity 9,030
Total assets \$ 15,750 Total liabilities and equity \$ 15,750
a. Calculate The Greek Connection’s net working capital in 2012.
b. Calculate the cash conversion cycle of The Greek Connection in 2012.
c. The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 had it matched the industry average for accounts receivable days?
5. Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30
6. Your supplier offers terms of 1/10, Net 45. What is the effective annual cost of trade credit if you choose to forgo the discount and pay on day 45?
10. The Manana Corporation had sales of \$60 million this year. Its accounts receivable balance averaged \$2 million. How long, on average, does it take the firm to collect on its sales?

14. Your firm purchases goods from its supplier on terms of 3/15, Net 40.
a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40?
b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50?
17. Which of the following short-term securities would you expect to offer the highest before-tax return: Treasury bills, certificates of deposit, short-term tax exempts, or commercial paper? Why?
19. Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:
Year 1 2 3 4 5
FCF(\$millions) 53 68 78 75 82
After then, the free cash flows are expected to grow at the industry average of 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14%:
a. Estimate the enterprise value of Heavy Metal.
b. If Heavy Metal has no excess cash, debt of \$300 million, and 40 million shares outstanding, estimate its share price.
D.1 How does management determine the total amount of working capital required?
a. What are the two principal reasons for holding cash? Can a firm estimate it’s target cash balance by summing the cash held to satisfy each of the two reasons?
b. What are the advantages of matching the maturities of assets and liabilities? What are the disadvantages?
D.2 How does management determine how working capital should be financed?
a. What are the four elements of a firm’s credit policy? To what extent can firms set their own credit policies as opposed to accepting policies that are dictated by its competitors?
b. From, the standpoint of the borrower, is long-term or short-term credit riskier? Please explain.