11. Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts, but is paying after 24 days instead of Day 30. You point out that the nominal cost of not taking the discount and paying on Day 30 is approximately 37%. But since your firm is neither taking discounts nor paying on the due date, what is the effective annual percentage cost (not the nominal cost) of its costly trade credit, using a 365-day year?

11. Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts, but is paying after 24 days instead of Day 30. You point out that the nominal cost of not taking the discount and paying on Day 30 is approximately 37%. But since your firm is neither taking discounts nor paying on the due date, what is the effective annual percentage cost (not the nominal cost) of its costly trade credit, using a 365-day year?

Name: 11. Suppose the credit terms offered to your firm by its suppliers ar
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Description: 11. Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts,but is paying after 24 days instead of Day 30. You point out that the nominal cost of not taking the discount and paying onDa

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bruno Inc.'s Financial Statement for years 2014-2015. Compute for the Bruno Inc. Year 2015 Debt to Equity Ratio. (Answer Format: 12.23%, if computed answer is 12.343% answer should be 12.34%, if computed answer is 12.347% answer should be 12.35%) INCOME STATEMENTS 2014 2015 BALANCE SHEETS Assets Cash 2014 2015 Net sales $ 4,760 $ 5,000 S 60 50 COGS (excl. depr.) 3,560 3,800 ST Investments 40 . Depreciation 170 200 Accounts receivable 380 500 480 500 Inventories 820 1,000 Other operating expenses EBIT S 550 S 500 Total CA $ 1,300 $ 1,550 Interest expense 100 120 Net PP&E 1,700 2,000 Pre-tax earnings S 450 S 380 $ 3,000 $ 3,550 Taxes (40%) 180 152 NI before pref. div. $ 270 228 Preferred div. 8 8 S 190 $ 200 Net income $ 262 220 280 300 130 280 Other Data $ 600 S 780 Common dividends $48 $50 1,000 1,200 Addition to RE $214 $170 $ 1,600 $ 1,980 Tax rate 40% 40% 100 100 Shares of common stock 50 50 500 500 Earnings per share $5.24 $4.40 800 970 Dividends per share $0.96 $1.00 $ 1,300 S…
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Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 2 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are currently $1,000,000, variable cost is $600,000 (note the variable cost % is 60%). The firm expects that the change in credit terms will result in an increase in sales to $1,500,000 per year and variable costs will increase to $900,000 per year. Fizzy projects that 80 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's required return on equal-risk investments is 10 percent. (Assume a 360-day year.) What is the cost (benefit) of the marginal cash discount? O ($18,000) O $24,000 ($22,000) O $30,000
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A company is assessing granting credit to a new customer. The variable cost per unit is $88, the current price is $115, the probability of default is 34% and the monthly required return is 4.0%. Calculate the NPV of the switch. Assume the customer will purchase once.
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Zozan Corp. manufactures Hydrogen engines automobiles. The variable cost is $41,000 per unit, and the credit price is $44,000 each. Credit is extended for one period, and based on historical experience, payments for 11% of the orders are never collected. The required return is 3% per period. Assuming a repeat customer, should it be filled by the firm? The customer will not buy if credit is not extended (Do not use the $ sign. if your answer is -$123,456.78, then enter -123456.78).
Your company is evaluating a switch from a cash policy to a net 30 policy. The price per unit is $49, and the variable cost per unit is $20. The company currently sells 100 units per month. Under the proposed policy, the company expects to sell 110 units per month. The required monthly return is 2%. a-What is the effective annualized rate for this “loan” triggered by the credit policy?

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