Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 28, Problem 6CQ
Credit Period Length In each of the following pairings, 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 HI times; Firm B sells to customers with an inventory turnover of 20 times.
- d. Firm A sells fresh fruit; Firm B sells canned fruit.
- e. Firm A sells and installs carpeting; Firm B sells rugs.
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Students have asked these similar questions
One Corporation has two potential suppliers. Both are supplying the items at similar list prices and trade,discounts. However, Supplier A.offered a credit term of 2/10, n/30 and the other offered a term of 3/10, n/40. Which of the following statements is true?
a. Alpha should choose Supplier A and pay on the 10th day.b. Alpha should choose Supplier B and pay on the 10th day.c. Alpha can choose either supplier and always pay on the 10th day.d. If Alpha chose Supplier B, the former should pay on the 30th day so that it can maximize the trade discount
Cost of trade credit
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit. These terms will affect the cost of the asset for both the buyer and the seller.
Consider the following case:
Blue Elk Manufacturing buys most of its raw materials from a single supplier. This supplier sells to Blue Elk on terms of 2/15, net 45. The cost per period of the trade credit extended to Blue Elk, rounded to two decimal places, is___________%
Blue Elk’s trade credit has a nominal annual cost—expressed as an annual percentage rate (APR)—of_________%, assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
If Blue Elk’s supplier shortens the discount period by five days, this will _____________(Increase or decrease pick one) the cost of the trade credit.
Provided below is a list of several companies' revenue recognition policies.
Revenue Recognition Policy
A The performance obligation is satisfied with the passage of time. Interest is earned with the passage of time. Each period, income is accrued on loans even if customers have not yet paid the interest.
B The performance obligation occurs when the customer takes the merchandise (for in-store sales) or when the goods are delivered (for online sales). The company estimates product returns and reports an allowance at time of sale.
C The performance obligation is fulfilled when the customer takes the completed equipment. Revenues for financial or insurance services are recognized when the services are provided.
D The performance obligation is satisfied as the company builds and completes projects for customers. Revenue is recognized for long-term construction contracts based on the percentage of completion.
E The performance obligation occurs when the customer takes delivery of the…
Chapter 28 Solutions
Corporate Finance
Ch. 28 - Prob. 1CQCh. 28 - Trade Credit forms In what form is trade credit...Ch. 28 - Prob. 3CQCh. 28 - Five Cs or Credit What arc the five Cs of credit?...Ch. 28 - Credit Period Length What are some of the factors...Ch. 28 - Credit Period Length In each of the following...Ch. 28 - Inventory Types What are the different inventory...Ch. 28 - Just-in-Time Inventory If a company moves to a JIT...Ch. 28 - Inventory Costs If a companys inventory carrying...Ch. 28 - Inventory Period At least part of Dells corporate...
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