Question
In: Finance
A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...
A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 44 to 36 days. Bad-debt expenses are expected to decrease from 1.7 % to 1.1% of sales. The firm is currently selling 11,600 units but believes that as a result of the proposed change, sales will decline to 9,800 units. The sale price per unit is $ 54 and the variable cost per unit is $ 47. The firm has a required return on equal-risk investments of 11.5%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)
a. The reduction in contribution from decline in sales is (round to the nearest dollar, enter as negative number)
b. The benefit from the reduced marginal investment in A/R is (round to the nearest dollar)
c. The cost savings from the reduction in bad debts is (round to the nearest dollar)
d. The net profit or loss from implementing the proposed plan is (round to the nearest dollar, enter as negative number for a loss)
e. Is the proposed plan recommended?
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jeff jeffy answered 1 year agoRelated Solutions
A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...
A firm is contemplating shortening its credit period
from 40 to 30 days and believes that, as a result of this change,
its average collection period will decline from 45 to 36 days.
Bad-debt expenses are expected to decrease from 1.5% to 1% of
sales. The firm is currently selling 12,000 units but believes that
as a result of the proposed change, sales will decline to 10,000
units. The sale price per unit is $56, and the variable cost per...
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30...
Shortening the credit period A firm is
contemplating shortening its credit period from 40 to 30
days and believes that, as a result of this change, its average
collection period will decline from 46 to 35 days. Bad-debt
expenses are expected to decrease from 1.7% to 0.9% of sales. The
firm is currently selling 11,500 units but believes that as a
result of the proposed change, sales will decline to 9,600 units.
The sale price per unit is $58,...
A firm is contemplating shortening its credit period from 45 to 35 days and believes that,...
A firm is contemplating shortening its credit period from 45
to 35 days and believes that, as a result of this change, its
average collection period will decline from 51 to 43 days.
Bad-debt expenses are expected to decrease from 1.6 % to 1.1 % of
sales. The firm is currently selling 11,900 units but believes that
as a result of the proposed change, sales will decline to 9,900
units. The sale price per unit is $ 55 ,...
Solarius Trading Company is considering lengthening its credit period from 30 to 50 days. All customers...
Solarius Trading Company is
considering lengthening its credit period from 30 to 50 days. All
customers will continue to pay on the net date. The firm currently
has $300,000 of sales per year, but believes that as a result of
the proposed change, sales will increase to $360,000. Bad debt
expense will increase from 3% to 5% of sales. The variable cost is
70% of sales. The firm has a cost of capital of 12%. Assume a
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What...
Lengthening the credit period Parker Tool is considering lengthening its credit period from 30 to 60...
Lengthening the credit period Parker Tool is
considering lengthening its credit period from 30 to 60 days. All
customers will continue to pay on the net date. The firm currently
bills $480,000 for sales and has $345,000 in variable costs. The
change in credit terms is expected to increase sales to $540,000.
Bad-debt expenses will increase from 1% to 1.5% of sales. The firm
has a required rate of return on equal-risk investments of 20%.
(Note: Assume a 365-day year.)...
Lengthening the credit period Parker Tool is considering lengthening its credit period from 30 to 60...
Lengthening the credit period Parker Tool is
considering lengthening its credit period from 30 to 60 days. All
customers will continue to pay on the net date. The firm currently
bill $450,000 for sales and has $320,000 in variable costs. The
change in credit terms is expected to increase sales to $540,000.
Bad-debt expenses will increase from 1% to 1.5% of sales. The
firm has a required rate of return on equal-risk investments of
20%. (Note: Assume a 365-day year.)...
Dhar Corporation is contemplating a change in its credit policy from net 60 to net 30...
Dhar Corporation is contemplating a change in its credit policy
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reduce the cost of its investment in receivables. Currently, the
firm sells 5 million units at a price of $10 and an average cost of
$7.50 per unit. Under the proposed new credit terms, management
believes that sales will decline to 4.5 million units if the same
selling price is retained. Management intends to keep the...
Company X has credit sales of $189,000 Annual credit terms of net 30 days, Collection period...
Company X has credit sales of $189,000
Annual credit terms of net 30 days,
Collection period is 30 days.
3/10 discount worth it?
Cash generated used for bank loans of 12%
3/10 discount causes 23% increase in sales
Profit of 15%
what is the change in annual income?
Take offer?
RNE Manufacturing Company sells its products offering 30 days’ credit to its customers. During 2018, its...
RNE Manufacturing Company sells its products offering 30 days’
credit to its customers. During 2018, its first year of
operations, the following events occurred:
Sales on credit
2,400,000
Cash collections from credit customers
1,405,000
Accounts receivable, end of year
$995,000
$30,000 of accounts were deemed uncollectible in 2018. The
company anticipates that $48,000 worth of ARs will ultimately
become uncollectible. Which of the following is not true regarding
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A. RNE reports bad debt expense of $48,000....
Question 1 The Kingsmill Furniture Company sells its products, offering 30 days’ credit to its customers....
Question 1
The Kingsmill Furniture Company sells its products, offering 30
days’ credit to its customers. Uncollectible amounts are estimated
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allowance for doubtful accounts is adjusted based on an aging of
accounts receivable. The company began 2017 with the following
balances in its accounts:
Accounts
receivable
$305,000
Allowance for doubtful accounts
(25,500)
During 2017, sales on credit were $1,300,000, cash collections
from customers were $1,250,000...
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