Jamboo Corporation is considering extending trade credit to some customers previouslyconsidered 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 costswill be 75 percent of sales.The firm needs to pay 1,500 tax on additional sales.Compute Net income after tax.ANSWER FORMAT: 1234.56Answer:

Calculate:the amount of uncollectible accountsthe additional collection coststhe production and…

Answered: Jamboo Corporation is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 14P

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5. Kirk Development buys on terms of 2/15, net 60 days. It does not take discounts, and it typically pays on time, 60 days after the invoice date. Net purchases amount to $225,000 per year. On average, what is the dollar amount of total trade credit (costly + free) the firm receives during the year, i.e., what are its average accounts payable? (Assume a 365-day year, and note that purchases are net of discounts.)
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)
The firm's average accounts receivable balance is P2.5 million, and they are financed by a bank loan at an 11% annual interest rate. The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%. If the annual cost of the system is P15,000, what pre-tax net annual savings would be realized? P40,000 O P29,160 O P32,400 O P36,000 O P44,000
The firm's average accounts receivable balance is P2.5 million, and they are financed by a bank loan at an 11% annual interest rate. The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%. If the annual cost of the system is P15,000, what pre-tax net annual savings would be realized?P40,000P32,400P29,160P44,000P36,000
Reed plc is considering how to improve its debtor collection policy. The following information is available. Current Credit Sales: £912,000 Average debtor collection period (days): 94 days Wishing to introduce a new policy of payment within (days): 60 days Anticipated reduction in sales per year: £40,000 Increased collection costs per yer: £2,000 Short-term cost of borrowing (%): 30% Sales contribution to profit: 20% Required What will be the net benefit if Reed successfully enforces the new policy? When a corporation raises finance, there are two options: long-term debt finance (bank loan or corporate bonds) and equity finance (ordinary shares). The two approaches have fundamental consequences to the corporation. What are the main differences between the two approaches?
HAPPY Company makes credit sales of P1,800,000 annually. The average age of accounts receivable is 30 days. Management consider shortening credit terms to 20 days. Cost of money is 12%. How much will the company save from financing charges? Use 360-day year MY ANSWER IS 6,000 AND 12,000. WHAT IS THE CORRECT ANSWER?
A firm buys on terms of 2/10, net 30, but generally does not pay until 40 days after the invoice date. Its purchases totaled $1,095,000 per year. How much “non-free” trade credit does the firm use on average each year? What is the nominal cost of “non-free” trade credit? What is the effective cost rate of the costly credit?
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes. 1.Compute the incremental income after taxes that would result from these projections: 2.Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers… 3.Compute the additional investment in Accounts Receivable 4.Compute the incremental Return on New Investment…

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