CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
14th Edition
ISBN: 9780357292839
Author: MOYER
Publisher: CENGAGE L
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Chapter 18, Problem 10QTD
Summary Introduction
To discuss: The credit policy variables that the firm decides changing to decrease the average collection period.
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A company plans to tighten its credit policy. The new policy will decrease the average number of days
in collection from 75 to 50 days and will reduce the ratio of credit sales to total revenue from 70% -
60%. The company estimates that projected sales would be 5% less if the proposed new credit policy
is implemented. If projected sales for the coming year are P50 million, calculate the estimated peso
change in the firm's account receivable balance caused by this proposed change in credit policy.
Assume a 365-day year. [Answer format: INCREASE 1234567]
Assume the credit terms offered to your firm by your suppliers are 2/20, net 40. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 40. (Hint: Use a 365-day year.)
A bank has estimated its expected (predicted) loan loss rate on its consumer loans at 3.25%. If the bank wishes to earn 8% on it consumer loans, what rate should it charge its customers?
Chapter 18 Solutions
CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
Ch. 18 - Prob. 1QTDCh. 18 - Prob. 2QTDCh. 18 - Prob. 3QTDCh. 18 - Prob. 4QTDCh. 18 - Prob. 5QTDCh. 18 - Prob. 6QTDCh. 18 - Prob. 7QTDCh. 18 - Prob. 8QTDCh. 18 - Prob. 9QTDCh. 18 - Prob. 10QTD
Ch. 18 - Prob. 11QTDCh. 18 - Prob. 12QTDCh. 18 - Prob. 13QTDCh. 18 - Prob. 14QTDCh. 18 - Prob. 15QTDCh. 18 - Prob. 16QTDCh. 18 - Prob. 17QTDCh. 18 - Prob. 18QTDCh. 18 - Prob. 19QTDCh. 18 - Prob. 20QTDCh. 18 - Prob. 21QTDCh. 18 - Prob. 22QTDCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - Prob. 10PCh. 18 - Prob. 11PCh. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Prob. 14PCh. 18 - Prob. 15PCh. 18 - Prob. 16PCh. 18 - Prob. 17PCh. 18 - Prob. 18PCh. 18 - Prob. 19PCh. 18 - Prob. 20PCh. 18 - Prob. 21P
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- If ABC Corporation has annual credit sales of Ᵽ990,000 and its average accounts receivable is Ᵽ100,000, how many is its average collection period? Assuming that receivable turnover rate increases by 25%, how much would then be the estimated change in accounts receivable.Solution:arrow_forwardProvident Manufacturing recently began paying all of its invoices within 20 days of receipt, rather than its usual 30 days. How would this adjustment likely affect Provident's chances of receiving a bank loan in the near future? Provident would be less likely to receive a loan, because this adjustment would reduce the firm's current liabilities to a lower level than most banks like to see. O Provident would be less likely to receive a loan, because this adjustment suggests the firm does not anticipate having enough money to pay its debts in the months to come. O Provident would be more likely to receive a loan, because this adjustment would maximize the firm's current liabilities while minimizing its use of long-term debt. O Provident would be more likely to receive a loan, because this adjustment would minimize the firm's current liabilities while also showing the firm's ability to promptly pay off short-term debts.arrow_forwardRose Company currently uses maximum trade credit by not taking discounts on its purchases. The standard industry credit terms offered by all its suppliers are 2/10 net 30 days, and the firm pays on time. The new CFO is considering borrowing from its bank, using short- term notes payable, and then taking discounts. The firm wants to determine the effect of this policy change on its net income. Its net purchases are P11,760 per day, using a 365-day year. The interest rate on the notes payable is 10%, and the tax rate is 40%. If the firm implements the plan, what is the expected change in net income? P32,964 P36,526 P40,370 P34,699 P38.448arrow_forward
- Based on a 360-day year, the proposed relaxation of credit standards would result in an expected increase in the average accounts receivable balance of how much?arrow_forwardRose Company currently uses maximum trade credit by not taking discounts on its purchases. The standard industry credit terms offered by all its suppliers are 2/10 net 30 days, and the firm pays on time. The new CFO is considering borrowing from its bank, using short-term notes payable, and then taking discounts. The firm wants to determine the effect of this policy change on its net income. Its net purchases are P11,760 per day, using a 365-day year. The interest rate on the notes payable is 10%, and the tax rate is 40%. If the firm implements the plan, what is the expected change in net income? P32,964 P40,370 P36,526 P34,699 P38,448arrow_forwardAMRO Financials is quite certain that interest rates are going to decrease next month. How should the bank manager adjust the bank’s one-month repricing gap to increase the net interest income when interest rates decrease The bank should set its repricing gap to a positive position. In this case, as rates decrease, interest income will decrease by less than the decrease in interest expense. The bank should set its repricing gap to a negative position. In this case, as rates decrease, interest expense will decrease by more than the decrease in interest income. The bank should set its repricing gap to a positive position. In this case, as rates decrease, market value of assets will increase by more than the increase in market value of liabilities. The bank should set its repricing gap to a negative position. In this case, as rates decrease, market value of assets will increase by more than the increase in market value of liabilities.arrow_forward
- Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts. What is the average amount of accounts payable net of discounts? (Assume the $3.65 million of purchases is net of discounts—that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.) Is there a cost of the trade credit the firm uses? If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit? What would be the firm’s cost of not taking discounts if it could stretch its payments to 40 days?arrow_forwardA firm is offered trade credit terms of 3/15, net 30 days. The firm does not take the discount, and it pays after 50 days. (Assume a 365-day year.) A. The number of compounding period is _. B. How much is the rate per period? C. What is the annual nominal rate of not taking this discount?arrow_forwardALei Industries has credit sales of $146 million a year. ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of 35 days. a. What is the maximum level of accounts receivable that ALei can carry and have a 35-day average collection period? b. If ALei's current accounts receivable collection period is 55 days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of 35 days?arrow_forward
- Assume a bank’s review of its historical loan losses has been estimated at 1.33% for its auto loans. The bank currently has gross auto loans of $2,000,000. If the bank determines that the optimal or desired rate (r) for its auto loans is 4.5%, what rate should it charge to compensate for its expected losses?arrow_forwardA firm is offered trade credit terms of 3/15, net 30 days. The firm does not take the discount, and it pays after 50 days. (Assume a 365-day year) a. What is the effective annual cost of not taking this discount? b. How many days are there per period? c. How much is the rate per period? d. The number of compounding period is_? e. What is the annual nominal rate of not taking this discount?arrow_forwardA firm is offered trade credit terms of 3/15, net 30 days. The firm does not take the discount, and it pays after 50 days. (Assume a 365-day year.) A. The number of compounding period is ___. B. How much is the rate per period? C. How many days are there per period? D. What is the annual nominal rate of not taking this discount?arrow_forward
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