EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Textbook Question
Chapter 26, Problem 11P
The Mighty Power Tool Company has the following accounts on its books:
Customer Amount Owed (S) Age (days)
| ABC | 50,000 | 35 |
| DEF | 35,000 | 5 |
| GHI | 15,000 | 10 |
| KLM | 75,000 | 22 |
| NOP | 42,000 | 40 |
| QRS | 18,000 | 12 |
| TUV | 82,000 | 53 |
| WXY | 36,000 | 90 |
The firm extends credit on terms of 1/15, Net 30. Develop an aging schedule using 15-day increments through 60 days, and then indicate any accounts that have been outstanding for more than 60 days.
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Assume that you start with a balance of $3900 on your credit card. During the first month you charge $400 and during the second month you charge $650. Assume that your credit card charges a 29% APR and that each month you make only the minimum payment of 2.5% of the balance . Complete the following table. Round to nearest cent
Table
Month 1 Previous balance- Finance charge - Purchase- Payments- New balance
Month 2 Previous balance- Finance charge - Purchase- Payments- New balance
ABC has a major supplier that offers a credit term of 2/15, n/45. Cash not yet used for payments are generally kept in an account that earns ABC 2.5% per year. Use 360 days in a year.
REQUIRED:
Simple annual effective cost of paying on 45th day instead of the 15th day
Compounded annual effective cost of paying on 45th day instead of the 15th day
Should ABC pay on the 15th day or 45th day?
Suppose your business has secured a line of credit and receives the accompanying statement of account for the month of October. The limit on your line of credit is $1000.00. You
receive daily interest of 1.6% p.a. on positive balances and pay daily interest of 8% p.a. on negative (line of credit) balances. Overdraft interest is 15% p.a. on the daily amount
exceeding your line of credit limit. There is a service charge of $5.00 for each transaction causing an overdraft or adding to an overdraft. Use this information to complete parts (a)
through (e) below.
E Click the icon to view the statement for the month of October.
.....
(a) Calculate the amount of interest earned.
Total interest earned = $
(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)
(b) Calculate the amount of interest charged on the line of credit.
Total line of credit interest charged = $
Chapter 26 Solutions
EBK CORPORATE FINANCE
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
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