Until recently, Augean Cleaning Products sold its products on terms of net 70, with an average collection period of 85 days. In anattempt to induce customers to pay more promptly, it has changed its terms to 1/10, EOM, net 70. Assume current sales of $100, costsof $90, an interest rate of 12%, and no defaults. Assume each month has 30 days and a year has 360 days. The initial effect of thechanged terms is as follows:Percent of Sales with Cash Discount70Average Collection Periods(Days)Cash Discount40aNet present valueNet90Some customers deduct the cash discount even though they pay after the specified date.a. Calculate the NPV per $100 of sales based on the original terms. (Do not round intermediate calculations. Round your answer to 2decimal places.) b. Assume that sales volume is unchanged and there are no defaults. Calculate the NPV per $100 of sales based on the revised terms.(Assume all sales occur in the middle of the month. Do not round intermediate calculations. Round your answer to 2 decimalplaces.)Net present value

Net present value (NPV):Net present value is a financial tool that helps assess the profitability of…

Answered: Until recently, Augean Cleaning…

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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a. Argo sells maintenance services to various private jet operators. For these, it demands payment within 15 days. Argo is considering changing this policy to 1.1%/5, net 15. What is the implicit effective annual rate in this payment policy? Important: Show formulas used to calculate A B a) Effective Annual Rate (EAR) 2 3 Notional purchase 4 Discount (%) 5 Days difference 7 Discount ($) 8 Rate (%) 9 Days difference in 1 year 10 11 EAR
A loan has quarterly payments. The APR is 16%, and interest is compounded 12 time(s) per year. The effective interest rate that would be needed to find the payment amount for the loan is _%. Margin of error for correct responses: +/-.02 (%) Rounding and Formatting instructions: Do not enter dollar signs, percent signs, commas, X, or any words in your response. Do not round any intermediate work, but round your *final* response to 2 decimal places (example: if your answer is 12.3456, 12.3456%, or $12.3456, you should enter 12.35).
Red Lizard Construction just borrowed $53,600.00. The terms of the loan require the company to make equal monthly payments forever. The first monthly payment is due in 1 month. If the regular monthly loan payment is $600.00, then what is the EAR of the loan? A rate less than 10.44% or a rate greater than 14.72% A rate equal to or greater than 12.43% but less than 13.86% A rate equal to or greater than 10.44% but less than 11.06% A rate equal to or greater than 11.06% but less than 12.43% A rate equal to or greater than 13.86% but less than 14.72% 100
Zane Corporation has an inventory conversion period of 76 days, an average collection period of 35 days, and a payables deferral period of 20 days. Assume 365 days in year for your calculations. What is the length of the cash conversion cycle? Round your answer to two decimal places.days If Zane's annual sales are $2,030,230 and all sales are on credit, what is the investment in accounts receivable? Do not round intermediate calculations. Round your answer to the nearest cent.$ How many times per year does Zane turn over its inventory? Assume that the cost of goods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio. Do not round intermediate calculations. Round your answer to two decimal places.x
A firm offers terms of 1.2/10, net 60. a. What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What effective annual interest rate does the firm earn if the terms are changed to 2.2/10, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What effective annual interest rate does the firm earn if the terms are changed to 1.2/10, net 75, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d. What effective annual interest rate does the firm earn if the terms are changed to 1.2/15, net 60, and the customer does not…
(Related to Checkpoint 18.2) (Evaluating trade credit discounts) If a firm buys on trade credit terms of 5/15, net 90 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assume a 365-day year)? The annualized cost of the trade credit terms of 5/15, net 90 is %. (Round to two decimal places.)
Cook Security Systems has a $37,500 line of credit, which charges an annual percentage rate of prime rate plus 4%. The starting balance on October 1 was $9,100. On October 4 they made a payment of $1,800. On October 13 the business borrowed $2,100, and on October 19 they borrowed $4,200. If the current prime rate is 8%, what is the new balance (in $)? (Round your answer to the nearest cent.) $
cool security systems has $37,500 line of credit , which charges an annual percentage rate of prime rate plus 4%. The starting balance on October 1 was $9,300. on October 4 they made a payment of $1,200. On October 13 the business borrowed $2,500 , and on October 19 they borrowed $4,200. If the current prime rate is 6% , what is the new balance (in $)? (Round your answer to the nearest cent.)
Compsny X sells on a 1/15, net 90, basis. Company Y buys goods with an invoice of $3,000. Discount= $30 Number of days= 75 C.) What is the effective annual rate of interest if Y pays on the due date rather than day 15? (Use 365 days in a year. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
ngram Office Supplies, Inc., buys on terms of 2/15, net 50 days. It does not take discounts, and it typically pays on time, 50 days after the invoice date. Net purchases amount to $675,000 per year. On average, what is the dollar amount of costly trade credit (total credit – free credit) the firm receives during the year? (Assume a 365-day year, and note that purchases are net of discounts.) Do not round intermediate calculations. $56,959 $64,726 $78,318 $59,548 $53,723
Big Dom’s Pawn Shop charges an interest rate of 26.8 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. a. What rate should the shop report? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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