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?
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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?JJ 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 13%. Based on these available information, what is the net benefit/(cost) of ihis change in policy?The sales director of ABC Corp suggest the following credit terms. He estimated the following:Sales will increase by at least 20%AR turnover will be reduced to 8 times from present turnover of 10 times.Bad debts will increase to 1.5%. Current bad debts are 1%.Current sales is P 900,000Variable cost ratio is 55%.Desired rate of return is 20%Fixed expenses is P 150,000What is the net advantage of changing the credit terms?
- A Zack Firm is evaluating an Accounts Receivable Change that would increase Bad Debts from 2% to 4% of Sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the Variable Cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 60,000 units. A. What are Bad Debts in Dollars currently? (Format: 11,111) B. What are Bad Debts in Dollars under the Proposed Change? (Format: 11,111) C. Calculate the Cost of the Marginal Bad Debts to the firm. (Format: 11,111)Tyres Ltd sells tyres on credit only. The management of the company estimated that it could increase sales by offering better credit terms. Currently, the days sales outstanding (or average collection period) is 11 days. It is expected that this will change to 40 days under the new standards. Sales are expected to increase from R100m to R105m. No discounts are offered and bad debts are negligible (zero). The company can borrow short term funds at a rate of 10% and has a gross profit margin of 15%. What would the net effect of changing its credit standards on its net profit be? a.-R841 096 b. -R91 096 c. R750 000 d. R1 500 000The credit terms of a firm currently is “net 30”. It is considering to change it to “net 60”. This will have the effect of increase in firm’s sales. As the firm will not relax credit standards, the bad debt losses are expected to remain at same percentage, that is, 3% of sales. Incremental production, selling and collection costs are 80% of sales and expected to remain constant over the range of anticipated sales increases. The relevant opportunity cost for receivables is 15%. Current credit sales are Rs. 300 crore and current level of receivables is Rs 30 crore. If credit terms are changed, the current sale is expected to change to Rs 360 crore and firm’s receivables level will also increase. The firm’s financial manager estimates that new level of credit terms will cause firm’s collection period to increase by 30 days. Determine the present collection period and the collection period after the proposed change in credit terms. What level of receivables is implied by the new…
- Bulldogs Inc. has a variable cost ratio of 20% and a 10% receivable financing cost. The firm is planning to relax their credit standard. Under the proposed new credit standard, the Investment in accounts receivable is P500,000. Bulldogs also observed that there is an increase of 25% in the carrying cost of accounts receivable from the old credit standard to new credit standard. What is the Accounts receivable balance of Bulldogs Inc. under the old credit standard? * ,Tara’s Textiles currently has credit sales of $360 million per year and an average collection period of 60 days. Assume that the price of Tara’s products is $60 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20% increase in sales and a 20% increase in the average collection period. No change in bad debts is expected. The firm’s equal-risk opportunity cost on its investment in accounts receivable is 14%. (Note: Use a 365-day year.) Calculate the additional profit contribution from sales that the firm will realize if it makes the proposed change. What marginal investment in accounts receivable will result? Calculate the cost of the marginal investment in accounts receivable. Should the firm implement the proposed change? What other information would be helpful in your analysis?ABC Corporation is deciding whether to change the credit term from 1/15, n/60 to 2/10, n/40 to speed up cash collections. Its original forecasted sales and average age of receivables are P7,000,000 and 63 days. With the new credit term, sales would decrease by 5% but the average age of receivables will be 42 days. ABC's variable cost rate is 55% while its weighted average cost of capital is 17%. How much is the benefit from the change in average receivable balance?
- Zed’s Textiles currently has Credit Sales of $360 million per year and an Average Collection Period of 60 days. Assume that the price of Zed’s products is $60 per unit and that the Variable Costs are $55 per unit. The firm is considering accounts receivable changes that will result in a 20% increase in sales and a 20% increase in the Average Collection Period. No change in Bad Debts is expected. The firm’s equal-risk Opportunity Cost on its investment in Accounts Receivable is 14%. (Note: Use a 365-day year) A. Calculate the Additional Profit Contribution from sales that the firm will realize if it makes the proposed change. (Format: 1,111,111) B. What Marginal Investment in Accounts Receivable will result? (Format: 1,111,111) C. Calculate the Cost of the Marginal Investment in Accounts Receivable. (Format: 1,111,111)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?Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. 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 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %