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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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 %
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)
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?
A firm is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The firm’s required rate of return is 9%. What is the payback period of this project? 1.95 years 2.46 years 2.99 years 3.10 years Based on the information from Question 47. What is the net present value (NPV) of the project? $28,830.29 $30,929.26 $36,931.43 $39,905.28 Based on the information from Question 47, what is the internal rate of return (IRR) of this project? 14.03% 17.56% 19.26% 21.78% Based on the information from Question 47, what is the profitability index (PI) of this project? 0.87 1.11 1.31 1.83.
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?
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 =
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…
A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and reduce the ratio of credit sales to total revenue from 70% to 60%. The company estimates that projected sales would be 5% less if the proposed new credit policy were implemented. The firm’s short-term interest cost is 10%. Projected sales for the coming year are P100 million. Assume a 360-day year, the increase (decrease) on A/R of this proposed change in credit policy is A. P0 B. (P5,000,000) C. (P6,666,6667) D. (P13,000,000)
Gary’s Pipe and Steel company expects sales next year to be $910,000 if the economy is strong, $655,000 if the economy is steady, and $376,000 if the economy is weak. Gary believes there is a 10 percent probability the economy will be strong, a 55 percent probability of a steady economy, and a 35 percent probability of a weak economy. What is the expected level of sales for next year?
Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell Moore, controller for Global Reach, has been reading about the advantages of foreign trade zones. He wonders if locating in one would be of benefit to his company, which imports about 90 percent of its merchandise (e.g., chess sets from the Philippines, jewelry from Thailand, pottery from Mexico, etc.). Darnell estimates that the new warehouse will store imported merchandise costing about 16.78 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling) is about 8 percent of the total. The average tariff rate on these imports is 5.5 percent. Required: 1. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in tariffs? Why? (Round your answer to the nearest dollar.) 2. Suppose that, on average, the merchandise stays in a Global Reach warehouse for nine months before shipment to retailers. Carrying cost for Global Reach is 6 percent per year. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.) 3. Suppose that the shifting economic situation leads to a new tariff rate of 13 percent, and a new carrying cost of 6.5 percent per year. To combat these increases, Global Reach has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.)

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