CORPORATE FINANCE>CUSTOM<
11th Edition
ISBN: 9781308755465
Author: Ross
Publisher: MCG/CREATE
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Chapter 26, Problem 10CQ
Summary Introduction
To identify: Whether it is ethical or not that large firm unilaterally lengthens the payable period especially when dealing with small suppliers.
Corporate ethics:
Corporate ethics are the ethical rules that have to be followed in a business while performing business activity. If the company does not follow the ethical rules at work place then the future of such company is in danger.
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Lux Co. believes that its collection costs could be reduced through modification of collection procedures. This action is expected to result in a lengthening of the average collection period from 30 to 40 days; however, there will be no change in uncollectible accounts, or in total credit sales. Furthermore, the variable cost ratio is 65%, the opportunity cost of a longer collection period is assumed to be negligible, the company's budgeted credit sales for the coming year are P45,000,000, and the required rate of return is 5%. To justify changes in collection procedures, the minimum annual reduction of costs (using a 360-day year and ignoring taxes) must be
No More Books Corporation has an agreement with Floyd Bank, whereby the bank handles $4.7 million in collections a day and requires a $470,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.35 million of collections a day, and each requires a compensating balance of $245,000. No More Books’ financial management expects that collections will be accelerated by one day if the eastern region is divided.
a.
What is the NPV of accepting the system? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
b.
What will be the annual net savings? Assume that the T-bill rate is 2.6 percent annually. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g.,…
Stan Inc. currently asks its credit customers to pay by the end of the month after the month of delivery. In practice, customers take rather longer to pay - on average 70 days. Sales revenue amounts to P 8 million a year and bad debts to P 20,000 a year. The company planned to offer customers a cash discount of 2% for payment within 30 days. Stan estimates that 50% of customers will accept this facility but that the remaining customers, who tend to be slow payers, will not pay until 80 days after the sale. At present the business has an overdraft facility at an interest rate of 12% a year. If the plan goes ahead, bad debts will be reduced to P 10,000 a year and there will be savings in credit administration expenses of P 6,000 a year. (Use 360 days)
How much is the net cost/benefit of the proposed policy?
A.P 24,000B.(P 24,000)C.(P11,370)D.P2,630
Chapter 26 Solutions
CORPORATE FINANCE>CUSTOM<
Ch. 26 - Prob. 1CQCh. 26 - Prob. 2CQCh. 26 - Prob. 3CQCh. 26 - Cost of Current Assets Grohl Manufacturing, Inc.,...Ch. 26 - Prob. 5CQCh. 26 - Shortage Costs What are the costs of shortages?...Ch. 26 - Prob. 7CQCh. 26 - Prob. 8CQCh. 26 - Prob. 9CQCh. 26 - Prob. 10CQ
Ch. 26 - Prob. 11CQCh. 26 - Prob. 12CQCh. 26 - Prob. 1QPCh. 26 - Cash Equation Blizzard Corp. has a book value of...Ch. 26 - Changes in the Operating Cycle Indicate the effect...Ch. 26 - Prob. 4QPCh. 26 - Calculating Cash Collections The Litzenberger...Ch. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Calculating Payments The Thakor Corporations...Ch. 26 - Calculating Cash Collections The following is the...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 15QPCh. 26 - Prob. 1MCCh. 26 - Rework the cash budget and short-term financial...Ch. 26 - Rework the sales budget assuming an 11 percent...
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