Michael Corporation spends Php 220,000 per annum on its collection department. The company has Php 12M in credit sales. Its average collection period is 2.5 months, and the percentage of bad debts loss is 4%. The company believes that if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad debt losses to 3%. The added cost is Php 180,000, bringing total expenditures to Php 400,000 annually. Is the increased effort worthwhile if the opportunity cost of funds is 20%? If it is 10%?
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- Michael Corporation spends Php 220,000 per annum on its collection department. The company has Php 12M in credit sales. Its average collection period is 2.5 months, and the percentage of
bad debts loss is 4%. The company believes that if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad debt losses to 3%. The added cost is Php 180,000, bringing total expenditures to Php 400,000 annually.
Is the increased effort worthwhile if the opportunity cost of funds is 20%? If it is 10%?

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- The Sandbox Company is planning to increase its level of collection expenditures form the current P250,000 to P400,000, on credit sales of P24,000,000. This move is expected to accelerate payments and increase turnover of receivables from 8 to 12 times and cut bad debts from two percent to one percent of credit sales. The opportunity cost of funds is 12 percent. The company uses a 360-day year in planning and controlling. Required: Calculate the following (show your solution): 1. Receivables turnover before and after the change in the collection policy. 2. Average receivable balance before and after the change in collection policy. 3. Net advantage or disadvantage of the new collection policyCobalt Distributors processes customer payments at its central office in Denver. The company has an average accounts receivable (A/R) balance of $4.2 million, which is financed through a line of credit at an annual interest rate of 11.8%. Management is evaluating a new lockbox system that is expected to reduce A/R by 19%. The annual cost of operating the lockbox system is $18,500. What is the estimated net annual savings from implementing the lockbox system?Aaish-o-Ishrat Technology is considering changes in the working capital policies to improve its cash flow cycle. The company's sales last year were Rs 3,250,000 (all on credit) and its net profit margin was 7%. Its inventory turnover was 6.0 X during the year, and its DSO was 41 days. The annual cost of goods sold was Rs 1,800,000. The company has fixed assets totaling Rs 535,000. The company's payables deferral period is 45 days. Required: (a) Calculate the company's cash conversion cycle. (b) Assuming the company hold a negligible amount of cash and marketable securities , calculate its total asset turnover, and ROA. (c) Suppose the company's managers believe the annual inventory turnover can be raised to 9 times without affecting sales, what will be the company's cash conversion cycle, total assets turnover, and ROA have been if inventory turnover had been 9 times for the year?
- JECO company is planning to build a new plant in Batangas City. The plant is expected to provide additional sales as follows: First Year P 2.0 million Second Year P 2.5 million Third Year P 3.0 million (maximum capacity) The financial manager of JECO estimates that for every peso of sales, P0.25 must be invested in current assets. If all discounts are taken and bills are paid on time, accounts payable average P 0.04 per peso of sales. Other current liabilities, such as wages payable, typically average P0.05 per peso of sales. Required: a. Estimate the working capital investments required for the new plant in the 1st, 2nd & 3rd year of operations. b. How do these requirements affect the associated cash flows and the viability of the project?The firm provided the following data for the year: Selling price per unit- ₱40; Variable production cost per unit- ₱15; Fixed production cost- ₱100,000; Sales commission per unit- ₱5.00; Fixed Selling and administrative expenses- ₱60,000. The firm has an outstanding loan of ₱200,000 with an interest rate of 5% per annum. The breakeven point (in peso) would be? a. ₱300,000 b. ₱340,000 c. ₱272,000 d. ₱256,000 e. ₱320,000X Ltd. has annual sales of 10,000 units at $300 per unit. The annual fixed costs amount to $300,000. The variable cost is $200 per unit. The current credit period is 1 month. The company is considering a proposal to increase the credit period. Fixed cost will increase by $60,000 on account of increase in sales beyond 25% of present level. The company plans a pre-tax return of 15% on investment in receivables. Requirements: 1. You are required to calculate the most paying credit policy for the company. 2. Breifly describe the process and provide the analysis of the results.
- Miltank Company sells a single product for ₱20 per unit. Last year, the company's sales revenue was ₱300,000 and its net operating income was ₱24,000. If fixed expenses totaled ₱96,000 for the year, the contribution margin per unit was ₱__________.Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?A telephone company have a production capacity of 500,000 units per month. At its present capacity of 3 50,000 units per month, the company have monthly income of ₱350,000,000. The company has a fixed cost of ₱100,000,000 per month and a variable cost of ₱200 per unit. a. What is the present profit or loss in millions of pesos? b. What is the break-even quantity? c. If the production is increased to 80% of its capacity, what is the profit or loss in millions of pesos?
- Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset buildup will be required to service the new accounts. Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is two times. d. What would be the total incremental investment in accounts receivable and inventory needed to support a $65,000 increase in sales?Gabbert’s Corporation expects to have sales of $15 million. Costs other than depreciations are expected to be 77% of sales, and depreciation is expected to be $1.8 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. The federal tax rate is 25%. Interest expense is $210,000. 1. Set up an income statement. What is Gabbert’s expcted net income? Its expected net cash flow? 2. Suppose Congress changed the tax laws so that Gabbert’s depreciation expenses went up by 60%. No changes in operations occurred. What would happen to the reported profit and to net cash flow? 3. Now suppose that Congress changed the tax laws such that, instead of increasing Gabbert’s depreciation, it was reduced by 60%. How would the profit and the net cash flow be affected? 4. If this were your company, would you prefer Congress to cause your depreciation expense to be increased or reduced? Why?Berry Manufacturing turns over its inventory 8 times each year, has an Average Payment Period of 35 days and has an Average Collection Period of 60 days. The firm’s annual sales are $3.5 million. Assume there is no difference in the investment per dollar of sales in inventory, receivable, and payables and that there is a 365-day year. A. Calculate the Firm’s Operating Cycle. B. Calculate the Firm’s Cash Conversion Cycle. C. Calculate the Firm’s Daily Cash Operating Expenditure.

