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- Relaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current expenses for the collection department are 35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to 22,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to 1,625,000 per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 40%?Suppose the company has just the opposite news and now expects unit sales for August, September, and October to be double (200%) the original estimates. What effect will this have on the company’s net income and borrowing? Explain your findings.Q1: Shannon’s brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $34 per visit. Shannon ‘s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.83% , based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year, or 1% per month. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.
- Ivanhoe Traders has annual sales of $1,600,000. The firm's financial manager has determined that using a lockbox will reduce collection time by 2.1 days. If the firm's opportunity cost on savings is 4.90 percent, what are the savings from using the lockbox? (Do not round itermediate calculations. Use 365 days for calculation. Round answer to 2 decimal places, e.g. 12.25.) what is the Savings from using the lockbox?Macy's Design has daily sales of $42,000. The financial management team has determined that a lockbox would reduce the collection time by 1.2 days. Assuming the company can earn 7.9 percent interest per year, what are the savings from the lockbox? (Round answer to 2 decimal places, e.g. 12.25.)Calculate the economic value of a loyal customer for a company given that the customer purchases, on an average, worth $43 per visit and comes three times a year. The company's gross profit margin is 35 per cent with a customer defection rate of 0.4.
- Use the following information to answer questions 19 through 30: Currently, OET Corporation sells 350,000 units of widgets a month at a price of $21 a unit. The company currently has a net 30 credit policy. Mr. Ent, the company's financial manager, is evaluating a new credit policy of net 60 for the company. The marketing manager thinks that sales would increase by 10,000 units per month if the company were to switch to the new credit policy. The APR for OET is 13% compounded monthly, and its variable cost per widget is $12. Ignore taxes. Tomorrow, Mr. Ent will be making a presentation on the new proposed credit policy to the CEO of OET. He will be expected to provide answers to the following questions Describe how you would calculate the net present value of the proposed credit policy switch.A product sells for ₱100 per unit and has a contribution margin of ₱45 per unit. Monthly fixed expenses total ₱350,000. The firm obtained a loan amounting to ₱250,000 with an interest rate of 11% per annum. The firm desires a profit after tax of ₱275,000 for the month. Tax rate is 25%. How many units must be sold for the month?The Milton Company currently purchases an average of $25,000 per day in raw materials on credit terms of "net 35." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $29,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ If Milton stretches its accounts payable an extra 5 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $
- X Ltd. has annual sales of 10,000 units at $300 per unit. The annual fixed costs amount to $300,000. The variable cost is $200 per unit. The current credit period is 1 month. The company is considering a proposal to increase the credit period. Fixed cost will increase by $60,000 on account of increase in sales beyond 25% of present level. The company plans a pre-tax return of 15% on investment in receivables. Requirements: 1. You are required to calculate the most paying credit policy for the company. 2. Breifly describe the process and provide the analysis of the results.A company currently sell goods of Tk. 6,00,000 with a terms of net 30 days. Its average collection period is 45 days. The company is planning to increase its sales by extending the credit period to 60 days on all sales that would help increasing sales by 15%. After the changes in credit policy the average collection period is expected to be 75 days. Variable cost per unit is Tk. 80 and selling price is Tk. 100 per unit. The company’s required rate of return on its investment in receivables is 20%. Should the company extend its credit period?A manufacturer currently prices its product at 10 TL per unit. Last year, the manufacturer sold 60.000 units. The variable cost per unit is 6 TL. Total fixed costs are 120.000 TL. The manufacturer intends to increase sales by 5%. Current accounts receivable collection period is 30 days. If the manufacturer wants to relax its credit standards, the expectation is that bad debt expenses will increase from 1% of sales to 2% of sales. The opportunity cost of investing in accounts receivables is 15%. In order to benefit from relaxing its credit standards, what would be the expected maximum accounts receivable collection period? (Assume that existing customers are not expected to alter their payment habits. 1 year = 365 days) a) 82,38 days b) 63,33 days c) 105,82 days d) 63,73 dayse) other
