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

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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
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.)
(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…
Wontaby Ltd. is extending its credit terms from 45 to 60 days. Sales are expected to increase from $4.75 million to $5.85 million as a result. Wontaby finances short - term assets at the bank at a cost of 12 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.) Annual financing costN
ebbing eflopse bank and trust offers an APR of 41.09 percent compounded quarterlt on its credit cards. Vanishing vortex regional Bank offers an APR OF 39.78 percent compounded daily on jts credit cards. A. what is rhe effective annual rate for ebbing eclipse bank and trust? B what is the effective annual rate for vanishing vortex bank and trust? C. which bank credit card is better?
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
i need the answer quickly
The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period. Current Policy New Policy Price per unit $ 85 $ 87 Cost per unit $ 45 $ 45 Unit sales per month 4,250 ? 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.)
A company can issue a 45-day $10 million commercial paper at a rate of 4.50%. It can reduce the rate to 4.35% if it is backed by a standby letter of credit (SBLC). A bank is willing to issue the SBLC for a fee of 10 basis points. The following is true: A The fee for issuing the SBLC is $10,000 B The net savings to the issuer is $1,250 C The amount received by the issuer for the commercial paper without an SBLC is $9,945,625. D The difference in the amount received by the issuer with and without the SBLC is $1,875.

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