Bulawan Coin, Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is current selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is $4,200,000, varia costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 15 percent. Required: 1. How much was the selling price per unit? 2. How much was the variable cost per unit? 3. How much is the contribution margin per unit? 4. What is the variable cost rate? 5. How much was the marginal profit contribution? the cost

Bulawan Coin, Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is current selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is $4,200,000, varia costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 15 percent. Required: 1. How much was the selling price per unit? 2. How much was the variable cost per unit? 3. How much is the contribution margin per unit? 4. What is the variable cost rate? 5. How much was the marginal profit contribution? the cost

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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KK Corporation is analyzing its option to restrict its credit terms. Current sales level is P6,000,000, average receivables balance is P500,000, bad debts on sales is 10%. With the new policy, sales will be P5,000,000, average receivables balance will be P200,000, and bad debts on sales will be 2%. The variable cost rate is 60% and the effective cost of capital is 18%. Based on these available information, what is the net benefit/(cost) of this change in policy?
Jamboo Corporation is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $230009 if credit is extended. 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 75 percent of sales. The firm needs to pay 1,500 tax on additional sales. Compute Net income after tax. ANSWER FORMAT: 1234.56 Answer:
The Mitchem marble Company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of 2.7 and current assets of $2.38 million. If Mitchem expands its receivable and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
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?
Atlantic Northern Inc. currently has $715,000 in accounts receivable and generated $4,650,000 in sales (all on credit) during the year that just ended. The firm’s days sales outstanding (DSO) is days. Use 365 days as the length of a year in all calculations. Atlantic Northern Inc.’s CFO is unhappy with its DSO and wants to improve collections next year. Sales are expected to grow by 13% next year, and the CFO wants to lower the DSO to the industry average of 30 days. How much accounts receivable is the firm expected to carry? $453,471 $431,877 $410,283 $388,689
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ABC Distributing Company sells small appliances to hardware stores. The President of the Company thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a 1/10, net 30, and the new policy would call for a 3/10, net 50. Currently 40% of the customers are taking the discount, and it is anticipated that this number would go up to 50% with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $250,000 because of the change in the cash discount policy. The increased sales would also affect the inventory level. The average inventory carried by Company is based on a determination of an EOQ. Assume unit sales of small appliances will increase from 20,000 to 25,000 unit. The ordering cost for each is $100 and the carrying cost is based on EOQ/2. Each unit in inventory has an average cost of $6.50. CoGS is equal to 65% of net sales; general and adm. expenses…
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The Mitchem Marble company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present the firm has a current ratio of 2.9 and current assests of $2.62 million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached? The additional amount of receivables and inventories (short term debt) is how many million? (rounded to two decimal places)
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
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?
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