Need answer this accounting question step by step calculation and do fast A firm is considering several policy changes toincrease sales. It will increase the variety of goods itkeeps in inventory, but this will increase inventory by$29,000. It will offer more liberal sales terms, but thiswill result in average receivables increasing by$84,000. These actions are expected to increase salesby $990,000 per year, and the cost of goods willremain at 70% of sales. Because of the firm's increasedpurchases for its own production needs, averagepayables will increase by $54,000.What effect will these changes have on the firm's cashconversion cycle?

Step 1:- Introduction to the Cash Conversion CycleBy its very name, the cash conversion cycle (CCC)…

Answered: A firm is considering several policy…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 2STP

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A firm is considering several policy changes to increase sales. It will increase inventory by $10,000 it will offer more liberal sales terms but will result in average receivables increasing by $65,000. These actions are expected to increase sales by $800,000 per year, and cost of goods will remain at 80% of sales. Because of the firm’s increased purchase of its won production needs, average payable increases by $35,000.What factors should they consider when making these decisions? What effects would they have on the firm’s cash cycle? Please select three financial ratios they should consider and why
A firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $11,500. It will offer more liberal sales terms, but this will result in average receivables increasing by $68,000. These actions are expected to increase sales by $815,000 per year, and cost of goods will remain at 70% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase by $36,500. What effect will these changes have on the firm’s cash cycle? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.) What is the change in cash cycle? Answer in Excel and show formulas please.
Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %
Finally, assume that the new product line isexpected to decrease sales of the firm’s otherlines by $50,000 per year. Should this be considered in the analysis? If so, how?
The financial manager of Company X has just received the sales forecast for next year and it indicates that the year's sales are expected to double in the second half. What are the challenges that Company X might face in increasing its production to meet the sales projections and how can these challenges be overcome? What risks does Company X face by ramping-up production to meet the sales forecast?
A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital. Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows into a cash flow spreadsheet. Part B: Calculate the proposal's NPV, IRR, and NAB. Part C: Should the company shorten its payment terms?
A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital. Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows from part A into a cash flow spreadsheet. Part B: Calculate the proposal's NPV, IRR, and NAB. Part C: Should the company shorten its payment terms?
In this exercise, we develop a model for the growth rate G, in thousands of dollars per year, in sales of a product as a function of the sales level s, in thousands of dollars.† The model assumes that there is a limit to the total amount of sales that can be attained. In this situation, we use the term unattained sales for the difference between this limit and the current sales level. For example, if we expect sales to grow to 4 thousand dollars in the long run, then 4 − s gives the unattained sales. The model states that the growth rate G is proportional to the product of the sales level s and the unattained sales. Assume that the constant of proportionality is 0.8 and that the sales grow to 2 thousand dollars in the long run. (a) Find a formula for unattained sales.(b) Write an equation that shows the proportionality relation for G.G =
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes. 1.Compute the incremental income after taxes that would result from these projections: 2.Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers… 3.Compute the additional investment in Accounts Receivable 4.Compute the incremental Return on New Investment…
If the economy continues to be strong, Carson Company may need to increase its production capacity by about 50% over the next few years to satisfy demand. It would also need financing to expand and accommodate the increase in production. The yield curve is currently upward sloping. Now, Carson is concerned about a possible slowing of the economy because of the potential actions of the Bangko Sentral ng Pilipinas (BSP) to reduce inflation. It is also considering issuing stock or bonds to raise funds in the next year. a. If Carson issued stock now, it would have the flexibility to obtain more debt and would also be able to reduce its cost of financing with debt. Why? b. Explain why institutional investors, such as mutual funds and pension funds, that invest in stock for long-term periods (at least a year or two) might prefer to invest in initial public offerings than to purchase other stocks that have been publicly traded for several years. c. Given that institutional investors such…
TechCorp is considering expanding its operations into a new international market, and the management team has identified two potential countries for expansion: Country A and Country B. Country A has experienced rapid economic growth in recent years, with GDP growing at a rate of 7% annually. However, it faces significant political instability, with frequent government changes and a high risk of new regulations that could impact foreign businesses. Country B, on the other hand, has a slower GDP growth rate of 2% annually but is politically stable with established laws that favor foreign direct investment. TechCorp specializes in manufacturing high-tech consumer electronics, and both countries have a growing middle-class population with increasing demand for such products. In Country A, operational costs, including labor and taxes, are relatively low compared to Country B, but there is a higher risk of supply chain disruptions. Country B offers a more stable business environment with…
Medina Weeks, a manufacturing company headquartered in Canada, has a competitive advantage that will probably deteriorate over time. Analyst Flavio Torino expects this deterioration to be reflected in declining sales growth rates as well as declining profit margins. To value the company, Torino has accumulated the following information: Current sales are C$600 million. Over the next six years, the annual sales growth rate and the net profit margin are projected to be as follows: Beginning in year 6, the 7 percent sales growth rate and 10 percent net profi t margin should persist indefinitely.· Capital expenditures (net of depreciation) in the amount of 60 percent of the sales increase will be required each year.· Investments in working capital equal to 25 percent of the sales increase will also be required each year.· Debt financing will be used to fund 40 percent of the investment in net capital items and working capital.· The beta for Medina Weeks is 1.10; the…

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