Question
In: Finance
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 , and the variable cost per unit is $ 45 . The firm has a required return on equal-risk investments of 11.9 % . Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)
The reduction in profit contribution from a decline in sales is
$ (Roundto the nearest dollar. Enter as a negativenumber.)
The benefit from the reduced marginal investment inA/Ris
$
The cost savings from the reduction in bad debts is
$
The net profit or loss from implementing the proposed plan is
$
Solutions
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 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...
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 customer applies for credit at your firm. Your terms are net 35 days. The customer’s...
A customer applies for credit at your firm. Your terms are net
35 days. The customer’s D&B report reveals that he pays on the
net date only 10% of the time. He pays 30 days late 60% of the
time, he pays 60 days late 20% of the time, and he pays 90 days
late 10% of the time (with necessary assistance being provided by a
collection agency).
The item he wishes to buy has an invoice price of $2,000...
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...
Aurora Corporation has annual credit sales of $1,200,000 with credit terms of 45 days and an...
Aurora Corporation has annual credit sales of $1,200,000 with
credit terms of 45 days and an average collection period of 40 days
with no discount. In the current economy Aurora has fallen upon
tough times and is looking for ways improve cash flow, so the
company is considering a changing their collection policy to 1/10
net 30. They estimate 50% of customers will take advantage of the
discount and the average collection period will be 28 days. With
the change...
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.)...
A firm has days' sales in an inventory of 105 days, an average collection period of...
A firm has days' sales in an inventory of 105 days, an average
collection period of 35 days, and takes 42 days, on average, to pay
its accounts payable. Taken together, what do these three figures
imply about the firm's operations and its cash flows?
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...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- sara is a 50-year-old woman who lives in a poor village in india. unfortunately, sara’s health...
- What is your opinion on the use of AI technology? Is it necessary or is it...
- For this problem, carry at least four digits after the decimal in your calculations. Answers may...
- Why is it okay to speculate on Currency?
- What is the budgeting cycle and master budget? Why should companies use a master budget?
- please i need to have good answers and easy to understand This exercise refers to the...
- (1 point) Find y as a function of t if y′′+25y=0, y(0)=4,y′(0)=6. y= ?
ADVERTISEMENT