ABC Limited has annual sales of Rs. 50 lacs. The selling price per unit is Rs. 50 per unit and the variable costs is 70% of the selling price. The required rate of return on investment is 20%, average cost per unit is Rs. 40 per unit. Annual collection expenditure is Rs. 60000 and default % is 5%. The credit terms offered by the company is 60 days. The Company is considering change in the credit policy and the expected impact is as follows: Option 1 Collection Period: 45 days Collection expenditure:75000 Default%: 3% Option 2 Collection Period: 30 days Collection expenditure: 140000 Default%: 1% Advise the company on the selection of the Options.
ABC Limited has annual sales of Rs. 50 lacs. The selling price per unit is Rs. 50 per unit and the variable costs is 70% of the selling price. The required rate of return on investment is 20%, average cost per unit is Rs. 40 per unit. Annual collection expenditure is Rs. 60000 and default % is 5%. The credit terms offered by the company is 60 days. The Company is considering change in the credit policy and the expected impact is as follows: Option 1 Collection Period: 45 days Collection expenditure:75000 Default%: 3% Option 2 Collection Period: 30 days Collection expenditure: 140000 Default%: 1% Advise the company on the selection of the Options.
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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ABC Limited has annual sales of Rs. 50 lacs. The selling price per unit is Rs. 50 per unit and the variable costs is 70% of the selling price. The required rate of
expected impact is as follows:
Option 1
Collection Period: 45 days
Collection expenditure:75000
Default%: 3%
Option 2
Collection Period: 30 days
Collection expenditure: 140000
Default%: 1%
Advise the company on the selection of the Options.
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