Finance Question: NPV and CAPM Related

Finance Question: NPV and CAPM Related

Finance Question: NPV and CAPM Related

Suppose that a project is to last 10 years, has an initial investment of $20,000, and cash flows of $2,000 per year and a terminal cash flow of $9,000.

Further, suppose that the project has a beta of 1.2, the risk free rate is 5.5%, and the market premium is 7.0%.  Calculate the NPV of this project and identify the decisions rule.

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Reeds Clothier Case Study and Questions

Reeds Clothier Case Study and Questions

Reeds Clothier Case Study and Questions

WEEK 4 – FIN 370 

“Reed’s Clothier” Case Study and Questions

Prepare a 350-700-word case study analysis of Case #16: “Reed’s Clothier” located in the Cases in Financial Management text, by Sulock and Dunkelberg. Be sure to address the following in your analysis:

Briefly summarize the case.

1) Calculate a few ratios and compare Reed’s results with industry averages. (Some industry averages are shown in Exhibit 16.4) What do these ratios indicate?

2. Why does Holmes want Reed’s to have an inventory reduction sale, and what does he think will be accomplished by it?

3. Jim Reed had adopted a very loose working capital policy with higher current assets than industry averages. If he merely tightens his working capital policy to the averages, should this affect his sales?

4. Assuming that Reed’s can improve its operations to be in line with the industry averages, construct a 1995 pro forma income statement. Assume that net sales will be reduced 5 percent to $1,938,000 but that depreciation and amortization will not change but remain at $32,000.

5. What type of inventory control system would you suggest to Jim Reed?

6. What type of accounts receivable control would you suggest to Jim Reed?

7. Is the increase in sales related to the increase in inventory?

8. What is Reed’s cost of not taking the suppliers’ discounts?

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