PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 30, Problem 15PS
Credit terms Phoenix Lambert currently sells its goods cash on delivery. However, the
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Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a
2%
cash discount for payment within 15 days. The firm's current average collection period is
60
days, sales are
40,000
units, selling price is
$46
per unit, and variable cost per unit is
$35.
The firm expects that the change in credit terms will result in an increase in sales to
45,000
units, that
70%
of the sales will take the discount, and that the average collection period will fall to
30
days. If the firm's required rate of return on equal-risk investments is
10%,
should the proposed discount be offered?
(Note:
Assume a 365-day year.)
DOLLAR BILL'S, a retail store in New York City, buys its inventory on credit. Upon purchase, it is given 30 days in which to pay its suppliers. It sells all of its merchandise on credit. It extends 60 days of credit to its customers. Its inventory turnover rate is 60 days.Situation 1Using the Cash Conversion Model, measure DOLLAR BILL'S financing cycle in both days and money ($US) using the following assumptions:
Sales of $730,000
Gross Margin of 30%
Financing Rate 6.5%
SEND HELP PLEASE
Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate. Compute for the required by filling up the supporting table.
Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group?
Increase in gross profit
Increase in receivables carrying cost
Increase in bad debts
Net advantage or disadvantage of the plan
Chapter 30 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 2PSCh. 30 - Prob. 3PSCh. 30 - Prob. 4PSCh. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 10PS
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Credit terms Phoenix Lambert currently sells its...Ch. 30 - Prob. 16PSCh. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Prob. 21PSCh. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Money-market yields In Section 30-4 we described a...Ch. 30 - Money-market yields Look again at the previous...Ch. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 33PS
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- Peanut Inc. is evaluating whether to change its credit terms from 2/10 net 30 to 3/10 net 30. At present, 50% of Peanut's sales are paid at day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on day 30 whereas the remainder will pay 15 days late (no bad debts exist). But as a result of the higher cash discount offered with the new terms, sales are expected to increase from 757,000 to 801,000 per year. Peanut's variable cost ratio is 75% and its cost of funds is 8.7%. All production costs are paid on the day of the sale. Should the change be made?arrow_forwardWith regard to accounts payable: Explain the rationale of taking a cash discount, such as 4/8, n/30. Assume a purchase of $1,000,000. Additionally, determine the approximate balance of accounts payable, if a company stretches its payables to 40 days and on average, they make purchases of $1,000,000 per day from their vendors.arrow_forwardYou prefer to extend credit on the assumption that you will be paid in fullwithin 30 days of the sales. Firm X has average inventory of $600,000 with all cash sales (no credit sales) of $6,000,000. If you extend credit to this firm, can you expect to be paid on time?arrow_forward
- Your business currently only accepts cash-only transactions. You are considering making a change by going to terms of net 30 days. With the following information, should you change your credit policy? Required return per month is 1.05 percent. Current Policy New Policy Price per unit $ 13,150 $ 13,550 Cost per unit $ 10,500 $ 10,500 Unit sales per month 2,750 3,000arrow_forwardPlease Solve This Question International Industries sells on terms of 3/10, net 50. Gross sales last year were 5,662,500 and accounts receivable averaged 547,500. Half of International’s customers paid on the 15th day and took discounts. What are the nominal and effective costs of trade credit to International’s non-discount customers? (Hint: Calculate sales/day based on a 360-day year, then calculate average receivables of discount customers and then find the DSO for the non-discount customers.arrow_forward
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