Explain the following tables and discuss about policy “A" and policy “B" in collection program? Justify which policy suits to the firm and why? Collection Programs Default Risk and Bad-Debt Losses Present Policy Policy A Policy B $2,400,000 $3,000,000 $3,300,000 $ 600,000 $ 300,000 Demand Incremental sales Default losses Original sales Incremental Sales 2% 10% 18% Avg. Collection Pd. Original sales Incremental Sales 1 month 2 months 3 months Default Risk and Bad-Debt Losses Policy A Policy B 1. Additional sales 2. Profitability: (20% contribution) x (1) 3. Add. bad-debt losses: (1) x (bad-debt %) 4. Add. receivables: (1) / (New Rec. Turns) 5. Inv. in add. receivables: (.80) x (4) 6. Required before-tax return on $600,000 120,000 60,000 100,000 80,000 $300,000 60,000 54,000 75,000 60,000 additional investment: (5) x (20%) 16,000 12,000 7. Additional bad-debt losses + additional required return: (3) + (6) 76,000 66,000 8. Incremental profitability: (2) - (7) 44,000 (6,000)

Explain the following tables and discuss about policy “A" and policy “B" in collection program? Justify which policy suits to the firm and why? Collection Programs Default Risk and Bad-Debt Losses Present Policy Policy A Policy B $2,400,000 $3,000,000 $3,300,000 $ 600,000 $ 300,000 Demand Incremental sales Default losses Original sales Incremental Sales 2% 10% 18% Avg. Collection Pd. Original sales Incremental Sales 1 month 2 months 3 months Default Risk and Bad-Debt Losses Policy A Policy B 1. Additional sales 2. Profitability: (20% contribution) x (1) 3. Add. bad-debt losses: (1) x (bad-debt %) 4. Add. receivables: (1) / (New Rec. Turns) 5. Inv. in add. receivables: (.80) x (4) 6. Required before-tax return on $600,000 120,000 60,000 100,000 80,000 $300,000 60,000 54,000 75,000 60,000 additional investment: (5) x (20%) 16,000 12,000 7. Additional bad-debt losses + additional required return: (3) + (6) 76,000 66,000 8. Incremental profitability: (2) - (7) 44,000 (6,000)

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

question attached in ss below thanks for da help aprpeicate it! gwhopwhkwtoph whwobp wtb owptw
What support does Finance teams need to give a customer-oriented company a. Link size of client to customer value b. Not interfere in any activity c. Pricing, taxation and collection data d. Pay salaries on time
Direction: Read the following independent cases given below. Provide necessary answer for all issues being asked. Provide a separate answer sheet for all your specific answers. A. The DIGITAL Company provided you with the following comparative Income Statement for your analysis. He wants you to enlighten the management on why the net profit decline. Sales Cost of Sales Gross Margin Operating Expenses Net Profit 2020 P680,000 170,000 P510,000 210,000 P300000 2021 P 570,000 200,000 P 370,000 100,000 P 270.000 Required: 1. Using Horizontal Analysis, calculate the peso change and the percentage changes. 2. Using Vertical Analysis, prepare the comparative common-size Income Statements. 3. Evaluate the results of your Analysis and explain to the management why the net profit declined.
I need help
A. Operating expenses are a function of: a. The cost of equity and the cost of debt b. The interest rates on debt and the amount of debt c. Design(s) of the value propositions, the skill level and processes for spending money to operate the company, and the loan term bond yield + the equity risk premium + risks specific to the company d. Design(s) of the value propositions, processes used to produce the value proposition(s), and the skill level and processes for spending money to operate the company B. Which of the following is most closely associated with margin as a %? a. Sales revenue b. The processes used to produce the company’s value proposition(s) c. The proportion of debt and equity in the company’s capital structure d. The average operating assets of the company C. Which of the following is most closely associated with asset utilization? a. The cost of equity b. Expenses c. Operating assets…
Which of the following may motivate managers to decrease the size of the allowance for doubtful debts Place answer in the marked square -> A performance measure based on sales revenue A performance measure based on gross profit A performance measure based on NPAT 1 2 4 All of the above 5 None of the above
Hello question is attached, thanks
Suppose a firm makes the following policy changes listed. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a (+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate effect on funds requirements.
3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA BUILDING DATA Purchase Price Loan % $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% Loan Amount $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Potential Gross Income Year 1 $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income $90,000 $94,500 $0 $0 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,710,000 $1,795,500 $1,885,275 $1,979,539…
Answer the following question in essay. What do you understand by current ratio? What are it uses? What are its limitations? Ratio analysis is widely used as a tool of financial analysis, yet it suffers from various limitations. Explain. How can solvency of a firm be measured? What you understand by Liquidity ratios? Discuss their significance. Page 1 Module PSFM08 MANAGERIAL ACOUNTING WITH FINANCIAL ANALYSIS AND REPORTING Explain the importance of profitability ratio. How they are worked out?
could you please help with attached question?
Q19