Zozan Corp. manufactures Hydrogen engines automobiles. Recently 450 new orders placed by customersrequesting credit. The variable cost is $35,000 per unit, and the credit price is $43,000 each. Credit isextended for one period, and based on historical experience, payments for 20% of the orders are nevercollected. The required return is 4% per period.Assuming a repeat customer, should it be filled by the firm? The customer will not buy if credit is not extended

Net present value is difference between the present value of cash flow and initial investment made…

Answered: Zozan Corp. manufactures Hydrogen…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 14P

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Zozan Corp. manufactures Hydrogen engines automobiles. The variable cost is $41,000 per unit, and the credit price is $44,000 each. Credit is extended for one period, and based on historical experience, payments for 11% of the orders are never collected. The required return is 3% per period. Assuming a repeat customer, should it be filled by the firm? The customer will not buy if credit is not extended (Do not use the $ sign. if your answer is -$123,456.78, then enter -123456.78).
A company is considering extending credit to a new customer. If the customer is approved, credit would be extended for 1 month. The required return is 1.3% per month. The price per unit is $4,600 and the variable cost per unit is $3,40O. Assume customers who don't default become repeat customers and place the same order every month forever and that a repeat customer will never default. What is the break-even probability of default?
Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2 2% cash discount for payment within 15 days. The firm's current average collection period is 60 60 days, sales are 40 comma 000 40,000units, selling price is $ 45 45 per unit, and variable cost per unit is $ 36 36. The firm expects that the change in credit terms will result in an increase in sales to 42 comma 000 42,000 units, that 70 70% of the sales will take the discount, and that the average collection period will fall to 30 30 days. If the firm's required rate of return on equal-risk investments is 25 25%, should the proposed discount be offered? (Note: Assume a365-day year.)
Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 2 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are currently $1,000,000, variable cost is $600,000 (note the variable cost % is 60%). The firm expects that the change in credit terms will result in an increase in sales to $1,500,000 per year and variable costs will increase to $900,000 per year. Fizzy projects that 80 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's required return on equal-risk investments is 10 percent. (Assume a 360-day year.) What is the cost (benefit) of the marginal cash discount? O ($18,000) O $24,000 ($22,000) O $30,000
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total $ 1,200,000 288,000 144,000 336,000 192,000 288,000 $ 2,448,000 Direct materials $ 25 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 3 7 4 Total cost $ 51 The Rets normally sell for $56 each. Fixed manufacturing overhead is $336,000 per year within the range of 41,000 through 48,000 Rets per year.
1. Assume that due to a recession, Polaski Company expects to sell only 33,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 7,000 units. This machine would cost $14,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 33,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.60 per…
McGriff Dog Food Company normally takes 30 days to pay for average daily credit purchases of $9,730. Its average daily sales are $10,010, and it collects accounts in 32 days. a. What is its net credit position? Net credit position b-1. If the firm extends its average payment period from 30 days to 37 days (and all else remains the same), what is the firm's new net credit position? (Negative amount should be indicated by a minus sign.) Net credit position b-2. Has the firm improved its cash flow? Yes No
I only need an answer to question 1, had previously asked this question and the answer I was given is incorrect, see attachment
Consider the case of the Cast Iron Company. On each nondelinquent sale, Cast Iron receives revenues with a present value of $1,300 and incurs costs with a present value of $1,000. Cast Iron’s costs have increased from $1,000 to $1,150. Assuming that there is no possibility of repeat orders and that the probability of successful collection from the customer is p = 0.96, answer the following. a-1. What is the expected profit of granting credit? b. What is the break-even probability of collection?
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 120.000 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) a) 82,38 days b) 63,33 days c) 105,82 days d) 63,73 dayse) other
Brevard Inc is considering changing its credit terms from net 55 to net 30 to bring its terms in line with other firms in the industry. Currently, annual sales are $2,250,000 and the average collection period (DSO) is 75 days. Brevard Inc. estimates that tightening the credit terms would reduce annaul sales to $2,025,000 but accounts recievable would drop to 39 days of sales. Brevard's variable cost ratio is 59% and its average cost of funds is 11.2%. Should the change in credit terms be made? Assume all operating costs are paid when inverntory is sold and that all sales are collected at the DSO.
Consider the case of the Cast Iron Company. On each nondelinquent sale, Cast Iron receives revenues with a present value of $1,390 and incurs costs with a present value of $1,000. Cast Iron’s costs have increased from $1,000 to $1,240. Assuming that there is no possibility of repeat orders and that the probability of successful collection from the customer is p = 0.95, answer the following. a-1. What is the expected profit of granting credit? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Should Cast Iron grant or refuse credit? multiple choice Grant Refuse b. What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.)

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