Problem 7: Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 72,000 rugs per year at an average price of $32 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days, and the variable cost per unit is $28. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that bad debts will increase to 1.5% of sales. Sales will increase by 4,000 repairs per year. If the firm has a required rate of return on equal-risk investments of 14%, what recommendation would you give the firm? Use your analysis to justify your answer. (Note: Use a 365-day year.)

Problem 7: Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 72,000 rugs per year at an average price of $32 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days, and the variable cost per unit is $28. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that bad debts will increase to 1.5% of sales. Sales will increase by 4,000 repairs per year. If the firm has a required rate of return on equal-risk investments of 14%, what recommendation would you give the firm? Use your analysis to justify your answer. (Note: Use a 365-day year.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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3. 3.Each year, 20/20 Vision Clinic sells 10,000 frames for eyeglasses. The clinic orders frames from a regional supplier, which charges $25 per frame. Each order incurs an ordering cost of $60. 20/20 vision believes that the demand for frames can be backlogged and that the cost of being short one frame for one year is $15 (because of loss of future business). The annual holding cost for inventory is 20% of the dollar value of each frame. A. Find the optimal order quantity B. Find the maximum shortage and maximum inventory level.
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A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its negotiated financing. A. Calculate the cash conversion cycle before the lockbox system B. Calculate the cash conversion cycle after the lockbox system C.
CS&N Enterprises expects to sell 50,000 units in January and produce 55,000 units. The selling price per unit is $40. All sales are on credit. Customer amounts on account are collected 70% in the month of sale and 25% in the month following and 5% are never collected. Estimated Variable S&A are expected to be $3 per unit sold plus bad debt. Fixed S&A are estimated to be $30,000 of which $4,000 of the $30,000 is depreciation. What is the total amount of cash CS&N needs to have on hand to pay for selling and administrative expense in January?
17
Ascenda Corp. distributes the "Smart" brand of electronic controller systems. The company currently has a credit policy of 1/10, net 40, though an average only 20% of the customers pay in 10 days and take the discount, while another 30% pay on avorage in 15 days yet still take the unearned discount. The company's remaining customers pay on average in 50 days. Bad debt losses are 3% of sales. The company's sales are currently $600,000 per month, all on credit. Ascenda is thinking of restructuring its credit and collections department, with the goal of eliminating all unearned discounts and reducing bad debt losses to 1.5%. With this new policy, the company believes that sales will fall by 5% and 40% of the customers will pay in 10 days and obtain the discount, and that the remaining customers will pay in 40 days. Ascenda's variable costs are 60% of sales, its monthly collections department expense is expected to rise by $6,000 to $20,000, and its opportunity cost on funds is 12%…
Ingraham Inc. currently has $500,000 in accounts receivable, and its days sales outstanding (DSO) is 44 days. It wants to reduce its DSO to 20 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 10%. 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
Balboa Enterprises currently sells 13,650 units a month for total monthly sales of $272,863.50. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $11.30 and the monthly interest rate is 1 percent. What is the switch break-even level of sales? 13,492 units 13,525 units 13,600 units 13,968 units 14,069 units
4- A manufacturer currently prices its product at 10 TL per unit. Last year, the manufacturer sold 60.000 units. The variable cost per unit is 6 TL. Total fixed costs are 120.00O TL. The manufacturer intends to increase sales by 5%. Current accounts receivable collection period is 30 days. If the manufacturer wants to relax its credit standards, the expectation is that bad debt expenses will increase from 1% of sales to 2% of sales. The opportunity cost of investing in accounts receivables is 15%. In order to benefit from relaxing its credit standards, what would be the expected maximum accounts receivable collection period? (Assume that existing customers are not expected to alter their payment habits. 1 year = 365 days) 82,38 days 63,33 days 105,82 days O 63,73 days
2. Company XYZ sells CDs. The price of its new CD is $15. Fixed costs are $1,500,000 per year. Variable costs are $9. The company expects to sell 300,000 units this year. a. How many DVDS will the company need to sell to break even? b. If the forecasts are correct, how much will company XYZ make or lose this year (before taxes)?
CS&N Enterprises expects to sell 50,000 units in January and produce 55,000 units. The selling price per unit is $40. All sales are on credit. Customer amounts on account are collected 70% in the month of sale and 25% in the month following and 5% are never collected. Estimated Variable S&A are expected to be $3 per unit sold plus bad debt. Fixed S&A are estimated to be $30,000 of which $4,000 of the $30,000 is depreciation. What is the total budgeted selling and administrative expense?
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