FINANCIAL MANAGEMENT(LL)-TEXT
16th Edition
ISBN: 9781337902618
Author: Brigham
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 16, Problem 6MC
Johnson knows that RR sells on the same credit terms as other firms in its industry. Use the ratios presented earlier to explain whether RR’s customers pay more or less promptly than those of its competitors. If there are differences, does that suggest RR should tighten or loosen its credit policy? What four variables make up a firm’s credit policy, and in what direction should each be changed by RR?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
an example of how the factors in a firm's credit policy might differ between relaxed and restrictive policies, and differ in affecting sales and profit.
give an example of how the four factors in a firm's credit policy might differ between relaxed and restrictive policeis and differ in affecting sales and profit
1."Other things being equal, do both companies appear to have the ability to meet their obligations as measured by the debt to equity ratio?2.Based solely on the times interest earned ratios, do you reach the same conclusion as in Requirement 1?3.Is the margin of safety provided to creditors by Discount Goods improving or declining in recent years as measured by the average times interest earned ratio?"
Please do not copy and paste some other solutions from here.
Chapter 16 Solutions
FINANCIAL MANAGEMENT(LL)-TEXT
Ch. 16 - Define each of the following terms:
Working...Ch. 16 - What are the two principal reasons for holding...Ch. 16 - Prob. 3QCh. 16 - Prob. 4QCh. 16 - Prob. 5QCh. 16 - Prob. 6QCh. 16 - Prob. 7QCh. 16 - Prob. 8QCh. 16 - What kinds of firms use commercial paper?
Ch. 16 - Prob. 1P
Ch. 16 - Medwig Corporation has a DSO of 17 days. The...Ch. 16 - What are the nominal and effective costs of trade...Ch. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Snider Industries sells on terms of 2/10, net 45....Ch. 16 - Calculate the nominal annual cost of trade credit...Ch. 16 - Captain Whitman Ship Supplies offers terms of...Ch. 16 - Grunewald Industries sells on terms of 2/10, net...Ch. 16 - The D.J. Masson Corporation needs to raise...Ch. 16 - Negus Enterprises has an inventory conversion...Ch. 16 - Prob. 12PCh. 16 - Payne Products had 1.6 million in sales revenues...Ch. 16 - Dorothy Koehl recently leased space in the...Ch. 16 - Prob. 15PCh. 16 - Prob. 16PCh. 16 - The Raattama Corporation had sales of 3.5 million...Ch. 16 - Start with the partial model in the file Ch16 P18...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - Is there any reason to think that RR may be...Ch. 16 - Prob. 5MCCh. 16 - Johnson knows that RR sells on the same credit...Ch. 16 - Prob. 7MCCh. 16 - Prob. 8MCCh. 16 - What is the impact of higher levels of accruals,...Ch. 16 - Assume that RR purchases $200,000 (net of...Ch. 16 - Prob. 11MCCh. 16 - Prob. 12MCCh. 16 - Prob. 13MCCh. 16 - Prob. 14MCCh. 16 - Prob. 15MCCh. 16 - In an attempt to better understand RR’s cash...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Current Ratio: Would the following events increase or decrease a firms ratio? a. Inventory sold? b. A firm takes out a bank loan to pay its suuppliers? c. The firm arranges a line of credit that allows it to borrow at any time to pay its suppliers?arrow_forward7. If company A has current ratio of 1.3 while company B has a current ratio of 2.3, which is a better company? 8. Which ratio is more relevant - quick ratio or current ratio? 9. What other factors would a bank or supplier look into in deciding whether to lend short term credit?arrow_forwardWhat are the five Cs of credit? Explain why each is important? 2. What are some of the factors that determine the length of the credit period? Why the length of the buyer’s operating cycle often considered an upper bound on the length of the credit period? 3. In each of the following pairing, indicate which firm would probably have a longer credit period and explain your reasoning. a.Firm A sells a miracle cure for baldness; Firm B sells toupees. b. Firm A specializes in products for landlords; Firm B specializes in products for renters. c. Firm A sells to customers with an inventory turnover of 10 times; Firm B sells to customers with an inventory turnover of 20 times. d. Firm A sells fresh fruits; Firm B sells canned fruit. e. Firm A sells and install carpeting; Firm B sells rugs. 3. If a company’s inventory carrying costs are Php 5 million per year and its fixed order costs are Php 8 million per year, do you think the firm keeps too much inventory on hand or too…arrow_forward
- Please see the attached graph for questions below. What is the difference between the two companies on this ratio? What is a plausible explanation as to why they would differ? Is one company clearly different than the other? Are there economic or end-market influences that explain why the ratios differ? What might they be? Over time, is each company’s overall financial performance improving, declining, or is something strange going on? Do you think evaluating financial statements is a good idea? What do you regard as some of the shortcomings of financial ratio analysis?arrow_forwardHow does the uncertain nature of a firm’s sales due to COVID-19 influence its decision regarding the amount of short-term credit to use in its financing strategy?arrow_forwardI am currently working on a study guide and came across the following question. Which of the following statements correctly reflects the effects of granting credit to customers? a) total revenues may increase if both the quantity sold and the price per unit increase when credit is granted b) a firm's cash cycle generally increases if credit is granted, all else equal c) both the cost of default and the cost of discounts must be considered before granting credit d) a firm may have to increase its borrowing if it decides to grant credit to its new customers e) all of the above My professor stated that the answer is all of the above, but after going through the readings and resources provided I could not find a way to understand how each answer is considered to be correct. I also e-mailed my professor and am waiting for a response, so I decided to post my question here as well.arrow_forward
- 7. What does an increasing collection period for trade receivable suggest about a firm’s credit policy? A. The business is making profits. B. The credit policy is too restrictive. C. The credit policy may be too lenient. D. The business is probably losing qualified customers. E. The collection period has no relationship to a business’s credit policy.arrow_forwardGive typing answer with explanation and conclusion A firm's DSO is just below the industry average. This most likely indicates which of the following regarding the firm's credit and collection pilicies?arrow_forwardA bank that grants loans to firms in a many different lines of business: will increase its information cost and decrease its credit risk will increase both its information cost and its credit risk will decrease its information cost and decerase its credit risk will decrease its information costs and increase its credit riskarrow_forward
- Making changes to a firm’s credit policy involves trade-offs. Assuming that all other factors remain constant, which of the following are outcomes expected to result from an increase in a firm’s cash discount? Check all that apply. An increase in the cost of the discounts given An increase in the firm’s bad-debt expenses An increase in the firm’s credit sales, a speeding up of customer payments, and a reduction in the firm’s receivables investment An increase in the creditworthiness of the firm’s customersarrow_forwardWhich of the following statements is most correct? JUST EXPLAIN ONE ANSWER WHICH IS INCORRECT. a. It is possible for a firm to overstate profits by offering very lenient credit terms which encourage additional sales to financially "weak" firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts. A firm with excess production capacity and relatively low variable costs would not be inclined to extend more liberal credit terms to its customers than a firm with similar costs that is operating close to capacity. Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1st, the customer can take the discount up until March 15th, but must pay the net invoice amount by April 1st.arrow_forwardWhich of the following is true? a. If the payment term of n/20 shifted to 5/10, n/20 to start offering customers a cash discount, assuming sales remain to be constant, the day sales outstanding of the firm will likely shorten b. If a firm’s volume of credit sales decreases, then its liquidity ratios will also decrease. c. Relatively more restrictive credit term as comparing to other firms within the same industry will have a potential increase in sales d. High assets turnover is being reflected by inefficiencies present in the management of inventoryarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License