Question
In: Finance
Management at Firm X is considering switching from terms of cash only sales to trade credit...
Management at Firm X is considering switching from terms of cash only sales to trade credit terms of net 30 days, in an effort to increase sales. The table below shows projected financial information for the proposed trade credit terms and current cash terms. Based on this information, calculate the Trade Credit Value Added associated with the change in trade credit policy and make a recommendation. Assume that the first transaction would occur today, followed by monthly sales in perpetuity. The required monthly return is 1%.
| new policy | current policy | |
| price per unit | 340 | 340 |
| cost per unit | 260 | 260 |
| unit sale per month | 1850 | 1800 |
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS,
FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 1 year agoRelated Solutions
A firm currently makes only cash sales. It estimates that allowing trade credit on terms of...
A firm currently makes only cash sales. It estimates that
allowing trade credit on terms of net 30 would increase monthly
sales from 500 to 600 units per month. The price per unit is $75
and the cost (in present value terms) is $60. The interest rate is
1 percent per month. Should the firm change its credit policy if 5
percent of all customers fail to pay their bills under the new
policy?
A) Yes, profits will increase by...
A company is considering switching from a cash only policy to a net 30 credit policy....
A company is considering switching from a cash only policy to a
net 30 credit policy. The price per unit is $750 and the variable
cost per unit is $650. The company currently sells 1,900 units per
month. Under the proposed policy the company expects to sell 2,000
units per month. The required monthly return is .5%. If you were
using NPV analysis to decide whether the company should switch to
the net 30 credit policy, what amount would you...
Fahmi Enterprise has a cash-only sales policy. It is considering changing to a credit policy of...
Fahmi Enterprise has a cash-only sales policy. It is considering
changing to a credit policy of net 30 days. Information related to
the current and new policies is given in the table below. The
required rate of return is 0.75 percent per month.
Current Policy
New Policy
Price per unit (RM)
15.00
15.50
Cost per unit (RM)
8.00
8.40
Unit sales per month
2,000
2,050
Perform an analysis to show whether or not Fahmi Enterprise
should adopt the new policy?
ROK currently makes all sales on credit and offers no cash discount. The firm is considering...
ROK currently makes all sales on credit and offers no cash
discount. The firm is considering a 3 percent cash discount for
payment within 15 days. Its current average collection period is 50
days, sales are 2000 films per year, selling price is $45 per film
and the variable cost is $35 per film. ROK expects that the change
in credit terms will result in an increase in sales to 2,200 films,
of which 70 percent of sales will take...
Your firm just purchased $10,000 in goods from your supplier on trade credit terms of 0.5/10 net...
Your firm just purchased $10,000 in goods from your supplier on
trade credit terms of 0.5/10 net 60. Your
opportunity cost of funds is 10%. What is the PV of
waiting the 60 days to make payment?
Your firm just purchased $10,000 in goods from your supplier on trade credit terms of 0.5/10 net...
Your firm just purchased $10,000 in goods from your supplier on
trade credit terms of 0.5/10 net 60. Your
opportunity cost of funds is 10%. What is the PV of
waiting the 60 days to make payment?
a.$9,922.81
b.$9,838.27
c.$98.40
d.$9,000.00
(Cost of Trade Credit) Calculate the effective cost of the following trade credit terms where payment...
(Cost of Trade Credit) Calculate the effective cost of the
following trade credit terms
where payment is made on the net due date.
a. 3/10, net 30
b. 2/15, net 45
c. 3/15, net 60
d. 3/15, net 60
(Cost of trade credit) Calculate the effective cost of the following trade credit terms when payment...
(Cost of trade credit) Calculate the effective cost of the
following trade credit terms when payment is made on the net due
date. Use approximate cost-of-credit formula. Note: Assume a
30-day month and 360-day year. a. 2/5, net 45 b. 3/10, net 30
c. 4/10, net 60 d. 2/10, net 60 a. When payment is made on the
net due date, the APR of the credit terms of 2/5, net 45 is
nothing%. (Round to two decimal places.) b. When...
(Cost of trade credit) Calculate the effective cost of the following trade credit terms when payment...
(Cost of trade credit) Calculate the effective cost of the
following trade credit terms when payment is made on the net due
date. Use approximate cost-of-credit formula. Note: Assume a
30-day month and 360-day year. a. 2/10, net 30 b. 3/15, net 30
c. 3/15, net 45 d. 2/15, net 60 a. When payment is made on the
net due date, the APR of the credit terms of 2/10, net 30 is
nothing%. (Round to two decimal places.) b. When...
Trade Credit 20-10. Legacy Enterprises received an invoice from its supplier. The terms of credit were...
Trade Credit
20-10. Legacy
Enterprises received an invoice from its supplier. The terms of
credit were stated as 3/15, n45. Calculate the effective annual
interest rate on the trade credit.
Commercial Paper
20-11. Callaway Krugs
issues $2,000,000 in commercial paper for 90 days at a 3.8 percent
discount yield. Calculate each of the following.
a. Dollar
amount of the discount
b. Price
of the commercial paper
c. Effective annual interest rate on
the commercial paper
Effective Interest
Rate
20-12. Lugash wants to
buy...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Non-constant growth model: Do=$2.00 required return on equity= 5% g= 9% n=1,2 g=7% n=3,4 g=3% n=5...
- . Find all x ∈ Z143 such that x2Ξ 7 (mod 143). Please explain all steps...
- #Python: A palindrome is a sequence of characters that reads the same backwards as forwards. For...
- Explain an example in which a variable has two different addresses at different places in a...
- Hadley, a thirty-five-year-old physician, has worked at Princeton Plainsboro Hospital for six years. She recently received...
- QUESTION 1. For each of the following, state whether the occurrence of the variable x occurs...
- According to Mike Taft of RVK, the “Markets Group” is an important unit of the Federal...
ADVERTISEMENT