Hudson Drilling & Mining (HDM) currently generates$90,000 in annual credit sales. HDM sells on terms ofnet 45, and its accounts receivable balance averages$15,000. HDM is considering a new credit policy withterms of net 30. Under the new policy, sales willdecrease to $85,000, and accounts receivable willaverage $17,000. Compute the days sales outstanding(DSO) under the existing policy and the proposed policy.

Step 1: Definition of Days Sales Outstanding (DSO)Days Sales Outstanding (DSO) measures the average…

Answered: Hudson Drilling & Mining (HDM)…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 33P

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Axis Wells and Excavation (AWE) currently generates $198,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $189,000, and accounts receivable will average $12,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSOExisting: days DSONew: days
Axis Wells and Excavation (AWE) currently generates $110,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $104,000, and accounts receivable will average $13,000. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSO Existing: days DSO New: days
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Taylor Company provides the following information: Annual credit sales : $ 24,000,000Collection period : 3 monthsTerms : net/30Rate of return : 18% The company is considering changing the credit discount policy to 4/10, net 30. The company anticipates that thirty percent of consumers will take the discount. The receivable collection period is expected to be reduced to 2 months. Should the discount policy be implemented? Explain with calculations.
Harper Corp.'s sales last year were $395,000, and its year-end receivables were $42,500. Harper sells on terms that call for customers to pay 30 days after the purchase, but many delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average days late, and use a 365-day year when calculating the DSO. O a. 9.74 b. 8.37 Oc8.81 Od. 7.95 Oe. 9.27
Campbell Computing Inc. expects to have sales this year of $30 million under its current credit policy. The company offers a credit term of 2/8, net 20. Currently, 60 percent of paying customers take the discount and rest are paying on time. The bad debt loss is 2 percent. The company has a profit margin of 20%, and uses a 5% short-term bank loan to finance its accounts receivables. With 365-day a year assumption, please calculate the following items: a. The bad debt loss of the company this year b. The annual discount given to customers c. The accounts receivables level d. The financing cost of accounts receivables
Dome Metals has credit sales of $288,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 3/18, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 10 percent. The new credit terms will increase sales by 15% because the 3% discount will make the firm's price competitive. a. If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.) b. Should the firm offer the discount?
Suncoast Boats Inc. estimates that because of seasonal nature of its business, it will borrow $5,000,000 for 70 days. Suncoast will borrow @ 9% annum using a discount loan. There will be $53,000 in up - front fees. a. Find loan amount b. Find interest. c. Find other cost/fees. d. Find compensating balance. e. Find m and period rate. f. Find Annual Percentage Rate, APR g. Find effective annual rate, EAR.
Han Corp's sales last year were $300,000, and its year-end receivables were $49,000. The firm sells on terms that call for customers to pay 30 days after the purchase, but some delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average days late, and use a 365-day year when calculating the DSO. Assume all sales to be on credit. Do not round your intermediate calculations.
Wontaby Ltd. is extending its credit terms from 30 to 45 days. Sales are expected to increase from $4.78 million to $5.88 million as a result. Wontaby finances short-term assets at the bank at a cost of 10 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.) Annual financing cost $ 110000
Wontaby Ltd. is extending its credit terms from 45 to 60 days. Sales are expected to increase from $4.75 million to $5.85 million as a result. Wontaby finances short - term assets at the bank at a cost of 12 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.) Annual financing costN

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