Hello tutor please provide this question solution general accounting Brown Corporation had average days of sales outstanding of 19 days inthe most recent fiscal year. Brown wants to improve its credit policiesand collection practices and decrease its collection period in the nextfiscal year to match the industry average of 15 days. Credit sales in themost recent fiscal year were $300 million, and Brown expects creditsales to increase to $390 million in the next fiscal year. To achieveBrown's goal of decreasing the collection period, the change in theaverage accounts receivable balance that must occur is closest to:A. +$0.41 million.B. -$0.41 million.C. -$1.22 million.

Calculation of Average Accounts Receivables when the collection period is 19 daysAverage Accounts…

Answered: Brown Corporation had average days of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 15P

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Brown Corporation had average days of sales outstanding of 19 days in the most recent fi scal year. Brown wants to improve its credit policies and collection practices and decrease its collection period in the next fi scal year to match the industry average of 15 days. Credit sales in the most recent fi scal year were $300 million, and Brown expects credit sales to increase to $390 million in the next fi scal year. To achieve Brown’s goal of decreasing the collection period, the change in the average accounts receivable balance that must occur is closest to: C . –$1.22 million.
Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 13,000 to 14,300 units during the coming year; the average collection period is expected to increase from 45 to 65 days; and bad debts are expected to increase from 11% to 33% of sales. The sale price per unit is $40, and the variable cost per unit is $31. The firm's required return on equal-risk investments is 25.3%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.) The additional profit contribution from an increase in sales is?
Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 5% from 10,000 to 10,500 units during the coming year; the average collection period is expected to increase from 40 to 55 days; and bad debts are expected to increase from 2% to 4% of sales. The sale price per unit is $39, and the variable cost per unit is $29. The firm's required return on equal-risk investments is 9.4%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note:Assume a 365-day year.) a. the cost from the increased marginal investment in A/R is? (round to nearest dollar) b. the cost from an increase in bad debts.? (round to nearest dollar) c. compute the net profit from the proposed plan.
ALei Industries has credit sales of $146 million a year. ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of 35 days. a. What is the maximum level of accounts receivable that ALei can carry and have a 35-day average collection period? b. If ALei's current accounts receivable collection period is 55 days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of 35 days?
Soler Inc. wishes to speed up collection of its receivables. Soler currently offers credit terms of net 30. It is considering changing to terms of 2/10 net 20. The collection period is expected to be reduced from 40 to 25 days. The percentage of customers paying within the discount period is expected to be 60 percent. Bad debt losses average 6 percent of sales and are expected to decrease to 5 percent under the proposed policy. The inventory level is expected to increase by $300,000. Annual billings are $50 million. The variable cost ratio is 75 percent. The pretax return on funds made available by this change in policy is 6 percent. Assuming the change in terms is made; determine the net effect on Soler’s pretax profits.
Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of $2.32 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $2,195,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Assume that Vinson’s variable cost ratio is 79%, taxes are 40%, and the interest rate on funds invested in receivables is 18%. Assuming a 365-day year, calculate the net income under the current policy and the new policy. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the change in credit terms be made?
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)
To increase sales, management is considering reducing its credit standards. This action is expected to increase sales by $120,000. Unfortunately, it is anticipated that 7 percent of the sales will be uncollectible. Accounts receivable turnover is expected to be seven times a year, and it costs the firm 11 percent to carry its receivables. Collection costs will be 4 percent of sales, and the cost of the additional goods sold is $62,000. Will earnings increase? Round your answer to the nearest dollar. Net in earnings is $ .
The Fierro Corporation has annual credit sales of $6 million. Current expenses for the collection department are $100,000, bad debt losses are 4 percent, and the days sales outstanding is 30 days. Fierro is considering easing its collection efforts so that collection expenses will be reduced to $50,000 per year. The change is expected to increase bad debt losses to 7 percent and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $8 million per year. Should Fierro relax collection efforts, if the opportunity cost of funds is 10 percent, the variable cost ratio is 75 percent, and its marginal tax rate is 30 percent? All costs associated with production and credit sales are paid on the day of the sale.
The Boyd Corporation has annual credit sales of $2.8 million. Current expenses for the collection department are $38,000, bad debt losses are 1.6%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $23,000 per year. The change is expected to increase bad - debt losses to 2.6% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $2,825,000 per year. Suppose that the opportunity cost of funds is 18%, the variable cost ratio is 65%, and taxes are 40%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.
The Tortuga Corp has annual credit sales of $2.5 million. Current expenses for the collection department are $40,000, bad-debt losses are 1.5%, and the days sales outstanding is 35 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $18,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 61 days. In addition, sales are expected to increase to $2.6 million per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 25%? O No, profits fall by $2.907 O No, profits fall by $5.509 Yes, profits grow by $2,907 O Yes, profits grow by $5,509
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is 35%, a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy % 76.77 Moderate policy Relaxed policy 9.04 5.05 1% b. In this problem, we have assumed that the level of expected sales is…

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