a typical day, U.C. Stars Vision Center writes $80,000 in checks, which take
five days to clear. They receive an average of $100,000 in checks from patients
on a daily basis, which take three days to clear.
a. (3 Points) What is U.C.’s disbursement float?
b. (3 Points) What is U.C.’s collections float?
c. (2 Points) What is U.C.’s net float?
d. (2 Points) Does this mean for U.C. will need
to fund, or invest the float?
PROBLEMS – Solve the following. Show/Explain
II. Meds R Us has just finished evaluating
several projects. Their cost of capital is 10%. NPV’s are calculated by the
firm’s current cost of capital.
B $ 3,000
NPV IRR $5,000 12% $ -500 8% $2,000 19% $4,000
14% $4,000 17%
????A. (5 Points) With no capital rationing, and assuming
the projects are of the same risk, which projects should Meds R Us accept? Why?
B. (6 Points) If Meds R Us has a Capital Budget
limit of $40,000, and assuming the projects are of the same risk, which
projects should they accept? Why?
C. (6 Points) Meds R Us now performs a risk
assessment of the projects.
They adjust for project risk by raising the
calculated IRR by 2% for low risk projects, leaving the IRR the same for
moderate risk projects, and lowering the calculated IRR by 3% for high risk
projects. Without capital rationing, which projects should Meds R Us accept?
B $ 3,000
NPV $5,000 $ -500 $2,000 $4,000 $4,000
IRR Level 12% High
8% Low 19% High 14% Mod. 17% Low
?????D. (6 Points) Considering the risk assessment in Part
C above, if Meds R Us has a Capital Budget limit of $40,000, which projects
should they accept? Why?
III. Consider the following financial statements
for nonprofit Dispatch & Patch Emergency Services:
Dispatch & Patch Emergency Services
Statement of Operations and Change in net Assets Year Ended December 31, 2014
Interest and Other Income
Salaries and Benefits
Provision for Bad Debts Supplies
Total Expenses Net Income
$30,000 4,500 300
$20,000 2,000 1,500 1,300 1,000
????Net Assets, January 1, 2014 Net Assets, December 31,
Dispatch & Patch Emergency Services Balance
December 31, 2014
$ $ $
8,800 400 9,200
2,200 1,200 100 3,500
Patient Accounts Receivable Supplies
Total Current Assets Net Fixed Assets
Accrued Expenses Current Long-term debt
Total Current Liabilities
Long-term Debt Total Liabilities
Net Assets (Total Equity) Total liabilities and
$ $18,400 $21,900
????$ 2,300 1,400 1,000 $ 4,700
$ 8,000 $12,700
$ 9,200 $21,900
Assume the industry average ratios are:
Total margin 3.5% Total Asset Turnover 2.0
Equity Multiplier 3.0 Return on Equity (ROE) 21.0% Return on Assets (ROA) 7.0%
Current Ratio 1.2
Days Cash on Hand Average collection period Debt
ratio Debt-to-Equity ratio Times Interest Earned Fixed Asset Turnover
40 days 10 days
67% 2.0 3.2 6.0
A. (6 Points) Perform a Du Pont analysis on
Dispatch & Patch. Comment on what the results imply.
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