Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,500 cash-paying customers and makes a profit of $60 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,200 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $220 to make a yuu, which retails for $280. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer?

Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,500 cash-paying customers and makes a profit of $60 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,200 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $220 to make a yuu, which retails for $280. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,500 cash-paying customers and makes a profit of $70 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,400 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $220 to make a yuu, which retails for $290. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without…
Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,000 cash-paying customers and makes a profit of $60 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,100 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $240 to make a yuu, which retails for $300. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? (Round to the…
Need help pleasee!! Will up votee
The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. Compute the lifetime value using a 10% discount rate. The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. AMEX enters the market and the customer lifetime reduces to 3 years. Compute the lifetime value of VISA using a 10% discount rate. The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. AMEX enters the market and expect similar revenues but a retention rate of 75%. Compute the lifetime value of AMEX using a 10% discount rate.
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…
Portland Savings and Loan is considering new computersoftware, which, because of installation and training cost,will have an unusual pattern of net receipts. The expected receiptsare: $20,000 in year 1, nothing in the next yea r, $30,000 in year 3,and $50,000 in year 4. At an interest rate of 6% what is the presentvalue of these receipts?
Electronic Supply can reduce its collection time by one day if it installs a lockbox system at a cost of $2,200 a year plus $.52 per transaction. It receives an average of 136 payments per day with an average payment of $7,980 each. The interest rate on money market securities is 3.98 percent. Assume a year has 365 days. What is the NPV of the lockbox system? Multiple Choice $156,727 $368,654 $274,208 O $421,730 $226,203
XYZ, Inc., produces and commercializes engines for cars. To stimulate sales, the financial manager is contemplating lengthening its credit period from the existing net 30 terms to net 35 terms. The credit analyst estimates that the new credit policy increases sales by 15 percent. The financial manager asks you to analyze the impacts of the proposed credit change on the firm's value. The variable costs, as a percent of sales, equal 70%. The existing monthly credit sales is $90 million. The existing bad debt loss rate is 2% and will increase by o.75% after lengthening the credit period. The existing credit & collection expenses equal 2.5% of sales and those under 35-day terms will be 3% of sales. The company's cost of capital is presently 10 percent. Under the new credit policy, the firm offers a 2% cash discount if they pay within one week and the percent of sales made to cash discount-takers will be 15%. 1) Calculate the NPV of one day's sales under the existing credit policydits)
XYZ, Inc., produces and commercializes engines for cars. To stimulate sales, the financial manager is contemplating lengthening its credit period from the existing net 30 terms to net 35 terms. The credit analyst estimates that the new credit policy increases sales by 15 percent. The financial manager asks you to analyze the impacts of the proposed credit change on the firm's value. The variable costs, as a percent of sales, equal 70%. The existing monthly credit sales is $90 million. The existing bad debt loss rate is 29% and will increase by o.75% after lengthening the credit period. The existing credit & collection expenses equal 2.5% of sales and those under 35-day terms will be 3% of sales. The company's cost of capital is presently 10 percent Under the new credit policy, the firm offers a 2% cash discount if they pay within one week and the percent of sales made to cash discount-takers will be 15%. 1) Calculate the NPV of one day's sales under the existing credit policy
Solve for A). (NEt daily advantage)
XYZ, Inc., produces and commercializes engines for cars. To stimulate sales, the financial manager is contemplating lengthening its credit period from the existing net 30 terms to net 35 terms. The credit analyst estimates that the new credit policy increases sales by 15 percent The financial manager asks you to analyze the impacts of the proposed credit change on the firm's value. The variable costs, as a percent of sales, equal 70%. The existing monthly credit sales is $90 million. The existing bad debt loss rate is 2% and will increase by 0.75% after lengthening the credit period. The existing credit & collection expenses equal 2.5% of sales and those under 35-day terms will be 3% of sales. The company's cost of capital is presently 1o percent. Under the new credit policy, the firm offers a 2% cash discount if they pay within one week and the percent of sales made to cash discount-takers will be 15%. 1) Calculate the NPV of one day's sales under the existing credit policy. 2)…
Puzzle Country, currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 2,500 puzzles per year, selling price is $20 per puzzle, variable cost per puzzle is $8,75, and the average cost per film is $10. The firm expects that the change in credit terms will result in a minor increase in sales of 100 puzzles per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent. (Assume a 360-day year.). Should this firm offer cash discount?