Yen Corporation will be relaxing its credit policy. Under he old policy of 2/10, n/25, sales total P5,000,000. Around 40% take the discount while the remainder pay on the 25th day. The proposed policy is 3/10, n/40. The increase in the cash discount and the payment term will like result to a P6,000,000 sales. This is expected to result to average days in receivables of 26.5 days (45% will be settled on the 10h day and the remainder on the 40h day). Variable cost rate will remain at 75%. The weighted average cost of capital is 15%. Using a 360-day year, how much is the annual net benefit/cost of this change?

Yen Corporation will be relaxing its credit policy. Under he old policy of 2/10, n/25, sales total P5,000,000. Around 40% take the discount while the remainder pay on the 25th day. The proposed policy is 3/10, n/40. The increase in the cash discount and the payment term will like result to a P6,000,000 sales. This is expected to result to average days in receivables of 26.5 days (45% will be settled on the 10h day and the remainder on the 40h day). Variable cost rate will remain at 75%. The weighted average cost of capital is 15%. Using a 360-day year, how much is the annual net benefit/cost of this change?

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

See similar textbooks

Similar questions

26
The Jeremy Flores Club has annual revenue of EUR 7 million and all sales are on account. Good credit and collection performance in the club industry result in a 30-day ACP (Average Collection Period). Assume a year has 365 days. Determine the maximum receivables balance the club can tolerate and still receive a good rating for credit and collections. If the Jeremy Flores Club is currently collecting receivables in 35 days, by how much must the receivable balance be reduced.
Last year, the sales of OSP Inc. Amounted to R5 million and its most recent statement of financial position revealed trade receivables of R822 000. All sales were on 30 days’ credit to customers. In order to encourage customers to pay in time, the management accountant of OSR Inc has proposed introducing an early settlement discount of 1% for payment within 30 days, while increasing its normal credit period to 45 days. It is expected that, on average, 60% of customers will take the discount and pay within 30 days. 30% of the customers will pay after 45 days, and the rest of the customers will not change their current paying behaviour, OSP Inc. Is charge interest of 12% per annum on its overdraft facility Required: Determine the net benefit (cost) of the proposed changes in trade receivables policy A. Net cost of approximately R7 000 B. Net benefit of approximately R 13000 C. Net cost of approximately R 13 000 D. Net benefit of approximately R 7 000
If ABC Corporation has annual credit sales of Ᵽ990,000 and its average accounts receivable is Ᵽ100,000, how many is its average collection period? Assuming that receivable turnover rate increases by 25%, how much would then be the estimated change in accounts receivable.Solution:
The sales director of ABC Corp suggest the following credit terms. He estimated the following:Sales will increase by at least 20%AR turnover will be reduced to 8 times from present turnover of 10 times.Bad debts will increase to 1.5%. Current bad debts are 1%.Current sales is P 900,000Variable cost ratio is 55%.Desired rate of return is 20%Fixed expenses is P 150,000What is the net advantage of changing the credit terms?
Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 880 $830 $.10 3.2% a. What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (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.) Answer is complete but not entirely…
The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2 percent per period. Price per unit Cost per unit Current New Policy Policy $ 86 $ 88 $46 $46 Unit sales per month 4,400 ? What is the break-even quantity for the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Break-even quantity 4,397.63x
The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. Price per unit Cost per unit Unit sales per month Current Policy $59 $33 2,450 NPV New Policy $61 $33 2,575 Calculate the NPV of the decision to change credit policies. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Which is correct ?
(Cost of factoring) MDM Inc. is considering factoring its receivables. The firm has credit sales of $300,000 per month and has an average receivables balance of $600,000 with 60-day credit terms. The factor has offered to extend credit equal to 89 percent of the receivables factored less interest on the loan at a rate of 1.3 percent per month. The 11 percent difference in the advance and the face value of all receivables factored consists of a 2 percent factoring fee plus a 9 percent reserve, which the factor maintains. In addition, if MDM Inc. decides to factor its receivables, it will sell them all, so that it can reduce its credit department costs by $1,200 a month. a. What is the cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement? Note: Assume a 30-day month and 360-day year. b. What considerations other than cost should MDM Inc. account for in determining whether to enter the factoring agreement? The cost of borrowing the maximum…
What is the approximate annual cost of foregoing the cash discount if the credit term is 2/15, net 40 and the company pays end of 50 days? Use 360 days a year. Group of answer choices 28.80 percent 29.39 percent 20.57 percent 20.99 percent
ABC Co. has a credit purchase of P40,000 with terms 2/10 net 30 with its supplier. Based on past experience, ABC Co. can manage to pay on the 40t day without penalty. The management of ABC Co. is pondering whether to avail the discount or not. ABC Co. has the following options of raising cash in case it wants to avail the discount:A. Convert its short term investments which is currently earning 14% per year. Transaction cost is estimated at 2%.B. Obtain a P40,000 discounted loan from PI which offers a discounted loan for 20 days at a cost of P320.IF the management makes the right decision, how much is the least possible cost(expressed in % to be incurred related to the trade credit?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS