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?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
Next > < Previous

Related 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 360-day year. 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 from net 60 to net 30 in order to speed up its collections and 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 RNE’s 2018 financial statements? 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 to be equal to 2% of credit sales. At the end of the year, the 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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT