A seller is considering extending trade credit to an existing customer that buys on cash terms. The customer has just placed a sales order (cash terms) for immediate delivery of 400 units at a sales price per unit of $100. The customer states that they will increase their sales order by 10 units if they receive a 90-day credit period. Variable costs are $65 per unit and involve an immediate cash outflow. If the seller has an annual opportunity cost rate of 7.3%, what is the present value of the cash flows from extending credit to the customer? $14,000.00 $13,625.05 -$26,650.00 $40,275.05

A seller is considering extending trade credit to an existing customer that buys on cash terms. The customer has just placed a sales order (cash terms) for immediate delivery of 400 units at a sales price per unit of $100. The customer states that they will increase their sales order by 10 units if they receive a 90-day credit period. Variable costs are $65 per unit and involve an immediate cash outflow. If the seller has an annual opportunity cost rate of 7.3%, what is the present value of the cash flows from extending credit to the customer? $14,000.00 $13,625.05 -$26,650.00 $40,275.05

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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You place an order for 1,100 units of Good X at a unit price of $48. The supplier offers terms of 3/30, net 40. How many days’ credit are you receiving? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Mobile Homes has an annual demand of 10,000 units for a small refrigerator. The supplier sells the units for $100 in order quantities below 124 and for $95 in order quantities above 125 units. The order cost is $5, and the annual holding cost is 10% of unit value. a) In what quantities should the item be purchased with an all-units quantity discount? b) If an incremental quantity discount schedule is in effect, how many refrigerators should Gursoy order each time an order is placed? c) Compare the cost savings for parts a) and b) with respect to the original case without discount. Which schedule is better?
1. Find a franchisee's breakeven sales in dollars. 2. Is franchising a good idea for Wong if franchisees want a minimum monthly operating income of $7,000 and Wong believes that most locations could generate $26,000 in monthly sales?
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Selena Corporation is currently considering relaxing its credit standards. Based on the analysis done, relaxing credit standard will potentially increase sales by 5%. Selena Corporation is currently selling 400 units with selling price of P700. Variable costs per unit based on status quo is at P400. The average total cost per unit is P425. What is the additional profit contribution from sales if credit standards are relaxed?
Golden Gate Novelties (GGN) sells souvenir key chains at the local airport. GGN charges $12.00 per chain. The variable cost for a chain, including the wholesale cost of the chain, packaging, the commission paid to the airport operator, and so on, is $10.40. The annual fixed cost for GGN is $15,000. Required: a. How many cases must Golden Gate Novelties sell every year to break even? Note: Do not round intermediate calculations. b. The owner of GGN believes that the company can sell 12,500 chains a year. What is the margin of safety in terms of the number of chains? a. Break-even point b. Margin of safety chains chains
Your firm sells high-end road and mountain bikes and related accessories. The following information is available to estimate customer lifetime value for a new customer: Average order: $ 535 Frequency of orders: 1.6 /year Average margin: 60 % markup on retail Customer retention rate: 62% Promotional/communication costs/yr $ 31 Your discount rate: 11 % Customer acquisition cost $ 177 What is the maximum amount your firm can afford to spend to increase customer retention from 62 % to 78 %? Report your answer rounded to the nearest dollar. To answer the question, calculate CLV at the higher retention rate and subtract the CLV at the lower retention rate. The difference will be the maximum amount the company can afford to spend to increase customer retention.
You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $10 per unit; the selling price is $14. This customer wants to buy 100 units today and pay in 60 days. You think there is a 10% chance of default. The required return is 3% per 60 days. Should you extend credit? Assume this is a one-time sale and the customer will not buy if credit is not extended.

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