Problem 31-18 Credit policy Cast Iron Company, on each nondelinquent sale, receives revenues with a present value of $1,220 and incurs costs with a value of $1,010. Cast Iron has been asked to extend credit to a new customer. You can find little information on the firm but you believe that the probability of payment is no better than 0.79 and that there will be a repeat order in one year if payment occurs. If the discount rate is 11%, calculate the minimum probability of payment on the repeat order at which credit can be extended. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Minimum probability 82.79%

Problem 31-18 Credit policy Cast Iron Company, on each nondelinquent sale, receives revenues with a present value of $1,220 and incurs costs with a value of $1,010. Cast Iron has been asked to extend credit to a new customer. You can find little information on the firm but you believe that the probability of payment is no better than 0.79 and that there will be a repeat order in one year if payment occurs. If the discount rate is 11%, calculate the minimum probability of payment on the repeat order at which credit can be extended. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Minimum probability 82.79%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 6P: Tightening Credit Terms Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed...

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Tightening Credit Terms Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of 2.5 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to 2,375,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Vinsons variable cost ratio is 85%, and taxes are 40%. If the interest rate on funds invested in receivables is 18%, should the change in credit terms be made?
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Question 3 Lolymino's customers are required to pay on 30 days, but on average pay on 45 days. Total sales revenue is £4,500,000 and the company expects irrecoverable receivables of £300,000. A suggestion has been made to offer a 5% discount to customers paying on 30 days. It is expected that 40% of customers will take advantage of this. Irrecoverable receivables would be expected to fall by £75,000 and administrative savings on credit control would amount to £25,000. Lolymino finances its working capital with a bank overdraft that costs 7.5% per annum. Should the suggested 5% discount be offered? What % discount would be most appropriate?
Question 36 A company has daily purchases of $10,000 from its supplier. The supplier offers trade credit under the following terms: 3/20, net 50 days. The company finally chooses to pay on time (pay in the 50th day) but not to take the discount. We assume 365 days per year. What is the average level of the company’s free trade credit? ______ $30,000 $170,000 $200,000 $300,000 Question 37 Based on the information from Question 36, what is the average level of the company’s total trade credit? $170,000 $200,000 $300,000 $500,000 38 . Based on the information from Question 36, what is the average level of the company’s costly trade credit? $170,000 $200,000 $300,000 $500,000 Question 39 Based on the information from Question 36, what is the nominal annual cost of the firm’s costly trade credit? 28.6% 29.3% 33.5%…
Early payment discount versus loan Joanne Germano works in an accounts payable department of a major retailer. She has attempted to convince her boss to take the discount on the 2/15 net 90 credit terms most suppliers offer, but her boss argues that giving up the 2% discount is less costly than a short-term loan at 10%. Prove to whoever is wrong that the other is correct. (Note: Assume a 365-day year.) The cost of giving up the cash discount is %. (Round to two decimal places.)
16. Problem 4.20 (DSO and Accounts Receivable) eBook Problem Walk-Through Ingraham Inc. currently has $790,000 in accounts receivable, and its days sales outstanding (DSO) is 61 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 25%. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
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