Soru 17Iris Company is considering lenghtening its credit period from 40 days to 45 days and believes, as a result of this change, its average collection period will increase from 40 days to 45 days. Bad debt expenses arealso expected to increase from 1% to 2% of sales. The firm is currently selling 300,000 units but believes as a result of the change, sales will increase to 325,000 units. On 300,000 units, sales revenue is $4,200,000,variable costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 12%. Evaluate this proposed change and make a recommendation to the firm43AY B IEE% 85 B8B 21

Company gives credit to customers to increase sales but there are cost of credit policy also so if…

Answered: any is considering lenghtening its…

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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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
Selling price is $120 per unit. Variable costs are $78 per unit. Fixed expenses are $249,480 per month. The company is currently selling 6,000 units. The marketing manager believes it can increase sales revenue per unit to $130. It is also increase advertising by $10,000 increase in the monthly advertising budget would result in a 10 percent increase in monthly sales. If these changes are made, what is the net income expected to become? This time you have to calculate total Net Income.
Violet Sales Corp, reports the year-end information from 2023 as follows: Sales (35,500 units) $284,000 Cost of goods sold 105,000 Gross margin 179,000 Operating expenses 152,000 Operating income $27,000 Violet is developing the 2024 budget. In 2024 the company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 14%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. What is budgeted sales for 2024?
MM Co. predicts sales of $45,000 for May. MM Co. pays a sales manager a monthly salary of $4,200 plus a commission of 6% of sales dollars. MM's production manager recently found a way to reduce the amount of packaging MM uses. As a result, MM's product will receive better placement on store shelves and thus May sales are predicted to increase by 9%. In addition, MM's shipping costs are predicted to decrease from 4% of sales to 2% of sales. Compute (1) budgeted sales and (2) budgeted selling expenses for May assuming MM switches to this more sustainable packaging. Answer is not complete. (1) Budgeted sales (2) Budgeted selling expenses
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Currently, OET Corporation sells 350,000 units of widgets a month at a price of $21 a unit. The company currently has a net 30 credit policy. Mr. Ent, the company's financial manager, is evaluating a new credit policy of net 60 for the company. The marketing manager thinks that sales would increase by 10,000 units per month if the company were to switch to the new credit policy. The APR for OET is 13% compounded monthly, and its variable cost per widget is $12. Ignore taxes. Tomorrow, Mr. Ent will be making a presentation on the new proposed credit policy to the CEO of OET. He will be expected to provide answers to the following questions. As another alternative, suppose the company offers a credit policy of 3/10, net 60. The periodic rate based on this new credit policy is © а. 13.00% O b. 3.09% O c. 10.00% O d. 3.00% O e. 6.09%
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
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XYZ Co is thinking about expanding. They have provided the following information: Expect an extra $2.5million in sales 18% of the sales will be uncollectible Collection Costs are 3% on all new sales Production Costs 70% of sales Selling expenses are 11% of sales Opportunity Cost of 22% (before taxes) Turn Receivables 4 times per year Should XYZ Co expand?
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?
Compony XYZ is currently making sales of $ 200,000. At this level, the variable experies were $ 100.000 company XYZ expects sales to increase to $ 250,000 in the coming period with no changer is expected to find expenses. How much is the expected change pront:
RAF is currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2% cash discount for payment within 15 days. The firm’s current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36. The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70% of the sales will take the discount, and that the average collection period will fall to 30 days. If the firm’s required rate of return on equal-risk investments is 25%, should the proposed discount be offered? (Note: Assume a 360-day year.)

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