Problem 31-16 Credit policy The Branding Iron Company sells its irons for $67 apiece wholesale. Productioncost is $57 per iron. There is a 18% chance that wholesaler Q will go bankrupt within the next eight months. Qorders 1,000 irons and asks for eight months' credit. Assume that the discount rate is 12% per year, there is nochance of a repeat order, and Q will pay either in full or not at all.a. Calculate the NPV of the orderb. should you accept the order?

The excess of cash flow's present worth over the initial cost indicates any project or investment's…

Answered: Problem 31-16 Credit policy The…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter15: Managing Short-term Assets

Section: Chapter Questions

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Problem 31-18 Credit policy Cast Iron Company, on each nondelinquent sale, receives revenues with a present value of $1,220 and incurs costs with a value of $1,010. Cast Iron has been asked to extend credit to a new customer. You can find little information on the firm but you believe that the probability of payment is no better than 0.79 and that there will be a repeat order in one year if payment occurs. If the discount rate is 11%, calculate the minimum probability of payment on the repeat order at which credit can be extended. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Minimum probability 82.79%
Problem 9 Happy Feet Company sells 3,300 pairs of running shoes per month at a cash price of P90 per pair. The firm is considering a new policy that involves 30 days' credit and an increase in price to P91.84 per pair on credit sales. The cash price will remain at P90, and the new policy is not expected to affect the quantity sold. The discount period will be 15 days. The required return is 1 percent per month. Required: a. How would the new credit terms be quoted? b. What investment in receivables is required under the new policy? c. Explain why the variable cost of manufacturing the shoes is not relevant here. d. If the default rate is anticipated to be 11 percent, should the switch be made? What is the break-even credit price? What is the break-even cash discount?
Problem 9-15 A firm has no cash sales (all sales are on credit and are collected 28 days after the sale). If the receivables are $164,000, what is the level of sales? Assume there are 365 days in a year. Round your answer to the nearest dollar. $
Question 36 A company has daily purchases of $10,000 from its supplier. The supplier offers trade credit under the following terms: 3/20, net 50 days. The company finally chooses to pay on time (pay in the 50th day) but not to take the discount. We assume 365 days per year. What is the average level of the company’s free trade credit? ______ $30,000 $170,000 $200,000 $300,000 Question 37 Based on the information from Question 36, what is the average level of the company’s total trade credit? $170,000 $200,000 $300,000 $500,000 38 . Based on the information from Question 36, what is the average level of the company’s costly trade credit? $170,000 $200,000 $300,000 $500,000 Question 39 Based on the information from Question 36, what is the nominal annual cost of the firm’s costly trade credit? 28.6% 29.3% 33.5%…
Problem 8-10 Sampson Orange Juice Company normally takes 30 days to pay for its average daily credit purchases of $7,500. Its average daily sales are $9,000, and it collects its accounts in 34 days. a. What is its net credit position? (Do not round intermediate calculations.) Net credit position b. If the firm extends its average payment period from 30 days to 45 days (and all else remains the same), what is the firm's new net credit position? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations.) New net credit position
Problem 12 (DSO and Accounts Receivable) James Inc. currently has P750,000 in accounts receivable, and its day sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 15%. What will be the level of accounts receivable following the change? Assume a 365-day year.
J Ltd. makes credit sales of $424,000 yearly The credit term offered by J Ltd. equals the average collection period ie, net 45 days. The company plans to adopt new credit terms. The new credit terms are 2/18. net 45. It is assumed that all the customers pay on the last day of the discount period. The company plans to use the amount of decrease in accounts receivable to reduce the bank loan that costs 10% Question 16 Assume that the new credit terms would increase the sales to 110% and the company earns 20% on sales before any discounts, determine the amount of net change in income if the company decides to adopt the new credit terms. (Use a 360-day year for calculations. Don't round intermediate calculations. Round the final answer to the nearest whole dollar) $8,400 $2.968 12 13 $2.120 $3.816
Question 3 Lolymino's customers are required to pay on 30 days, but on average pay on 45 days. Total sales revenue is £4,500,000 and the company expects irrecoverable receivables of £300,000. A suggestion has been made to offer a 5% discount to customers paying on 30 days. It is expected that 40% of customers will take advantage of this. Irrecoverable receivables would be expected to fall by £75,000 and administrative savings on credit control would amount to £25,000. Lolymino finances its working capital with a bank overdraft that costs 7.5% per annum. Should the suggested 5% discount be offered? What % discount would be most appropriate?
21-6 Receivables Investment Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchase. a. What is the day’s sales outstanding? b.What is the average account of receivables? c.What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 45th day?

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