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 $2.18 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 $2,055,000, 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. Vinson's variable cost ratio is 82%, taxes are 40%, and the interest rate on funds invested in receivables is 21%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the change in credit terms be made? -Select-

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 $2.18 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 $2,055,000, 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. Vinson's variable cost ratio is 82%, taxes are 40%, and the interest rate on funds invested in receivables is 21%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the change in credit terms be made? -Select-

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following information pertains to Striker Corporation, together with its DSO/ACP of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO/ACP to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year. Sales=P110,000; Accounts receivable= P16,000; Days sales outstanding (DSO/ACP)= 53.09; Benchmark days sales outstanding (DSO/ACP)=20.00 * P 8,078 O P 8,975 P 9,973 P10,970 P12,067
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Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices: $5,255 $5,240 $5,251 $5,260 $5,246
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Fitzgerald, Incorporated, currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. The required return is .67 percent per month. Price per unit Cost per unit Unit sales per month Current New Policy Policy $170 $173 $ 134 $ 137 1,290 1,320 Calculate the NPV of the decision to change credit policies. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Answer is complete but not entirely correct. $ 646.71
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