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- Pedro Corp. currently has sales of P2,000,000, and its days sales outstanding is 2 week. The financial manager estimates that offering longer credit terms would increase the days sales outstanding to 3 weeks and increase the sales by 50%. However, bad debts losses, which were 1% on the old sales, would amount to 2% only on incremental sales. Variable cost is 70% of sales. Pedro Corp. has a 10% receivable financing cost. Use 360 days per year, What is the incremental increase in the balance of AR? What is the Change in carrying cost? Indicate if an increase or decrease? What would the annual incremental pre-tax profit be if Pedro Corp. extended its credit period?Pedro Corp. currently has sales of P2,000,000, and its days sales outstanding is 2 week. The financial manager estimates that offering longer credit terms would increase the days sales outstanding to 3 weeks and increase the sales by 50%. However, bad debts losses, which were 1% on the old sales, would amount to 2% only on incremental sales. Variable cost is 70% of sales. Pedro Corp. has a 10% receivable financing cost. Use 360 days per year. a. What is the incremental increase in the balance of AR? b. What is the Change in carrying cost? Indicate if an increase or decrease c. What would the annual incremental pre-tax profit be if Pedro Corp. extended its credit period?Edgar Corp. currently has sales P2,000,000, and its days sales outstanding is 2 weeks. The financial manager estimates that offering longer credit terms would increase the days sales outstanding to 3 weeks and increase the sales by 50%. However, Bad Debts losses, which were 1% on the old sales, would amount to 2% only on incremental sales. Variable Cost is 70% of sales. Pedro Corp. has a 10% receivable financing cost. Use 360 days per year. Explain each item. A. What is the Incremental Increase in the balance of AR? (Format: 11,111.11) B. What is the Change in carrying cost? Indicate if it is an Increase or Decrease. (Format: 1,111.11 I or 11,111.11 D) C. What would the Annual Incremental Pre-tax Profit be if Edgar Corp. extended its credit period? (Format: 111,111.11)
- ABC Inc. currently sells P12,000,000 per annum. Its credit period and DSO are both 30 days, and 1.5% of its sales end up as bad debts. The credit manager estimates that if the firm extends Its credit period to 40 days so that its DSC increases to 40 days, sales will increase by P3,000,000 but their bad debts losses on the incremental sales will be 2.5%. Variable costs are 60%, and the cost of carrying receivables is 10%. Tax rateis 40%. (Assume 360 days per year). Compute the incremental Investment required to finance the increase in receivables if the change is implemented. What would be the Incremental cost of carrying receivables?SHE CO. currently has annual sales of P2,000,000. Its average collection period is 40 days, and bad debts are 5 percent of sales. The credit and collection manager is considering instituting a stricter collection policy, whereby bad debts would be reduced to 2 percent of total sales, and the average collection period would fall to 30 days. However, sales would also fall by an estimated P250,000 annually. Variable costs are 60 percent of sales and the cost of carrying receivables is 12 percent. Assume a tax rate of 40 percent and 360 days per year. What would be the incremental investment in receivables if the change were made?AKM Limited has annual credit sales of $20 million with an average collection period is three months. The company is considering factoring its’ A/R balances with a Rough Financing Limited at a 10% annual interest rate and 12% reserve requirement. Rough Financing charges factoring commission of 2.5%. Historically 97% of credit sales by AKM Limited are good sales and collectible. The credit administration department has a fixed operating cost $9000 per collection cycle, while the variable cost for collection and credit admin cost is 1.75% on credit sales. What is the annualized effective interest rate for AKM Limited?
- 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) otherToshiba Company is considering offering a cash discount to speed up the collection of account receivable, currently the firm has an average collection period of 56 days, annual sales are 50,000 units, and the sales unit price is $40 with per unit variable cost is $30. A 2% discount estimates that 80% of its customers will take, if sales are expected to rise by 12%, and the average collection period increased to 60 days. The additional profit contribution from sales isBRLM Company is planning to relax its credit standards to boost sales. As a result, sales are expected to increase 16 percent from 3,000 units per year to 3,480 units per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1.5 percent level. The price per unit is P4,250, the variable cost per unit is P3,060. The firm’s required return on investment is 20 percent.What is the cost of marginal bad debts under the proposed plan? Group of answer choices P168,300 P19,445 P38,838 P258,923 What is the net result of implementing the proposed plan? Group of answer choices –P312,474 +P168,274 +P319,260 –P168,274
- Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 72,000 rugs per year at an average price of $32 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days, and the variable cost per unit is $28. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that bad debts will increase to 1.5% of sales. Sales will increase by 4,000 repairs per year. If the firm has a required rate of return on equal-risk investments of 14%, what recommendation would you give the firm? Use your analysis to justify your answer. (Note: Use a 365-day year.)The Fierro Corporation has annual credit sales of $6 million. Current expenses for the collection department are $100,000, bad debt losses are 4 percent, and the days sales outstanding is 30 days. Fierro is considering easing its collection efforts so that collection expenses will be reduced to $50,000 per year. The change is expected to increase bad debt losses to 7 percent and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $8 million per year. Should Fierro relax collection efforts, if the opportunity cost of funds is 10 percent, the variable cost ratio is 75 percent, and its marginal tax rate is 30 percent? All costs associated with production and credit sales are paid on the day of the sale.Sisa Corporation has the following data: Selling price per unit Variable cost per unit. P70 Variable Cost per unit P45 Annual credit sales - units. 50,400 Collection period. 30 days Rate of return 20% Sisa Corporation is considering easing its credit standards. If it does, sales will increase by 25%; collection period will increase to 45 days; bad debts losses are anticipated to be 4% of the incremental sales; and collection costs will increase by P31,645. If the proposed relaxation in credit standards is implemented, the net benefit (loss) for Sisa Corporation is
