Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 15, Problem 15.11P
Initiating an early payment discount Gardner Company currently makes all sales on credit and offers no discount. The firm is considering offering a 2% discount for payment within 15 days. The firm's current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36. The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70% of the sales will take the discount, and that the average collection period will fall to 30 days. If the firm’s required
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Lewis Lumber 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 $360,000, and the average collection period (DSO) is 60 days. Lewis estimates tightening the credit terms will reduce annual sales to $356,000, but accounts receivable would drop to 35 days of sales. Lewis' variable cost ratio is 60 percent and its average cost of funds is 9 percent. Should the change in credit terms be made? Assume all operating costs are paid at the time inventory is sold and all sales are collected at the DSO. Assume there are 360 days in a year. Do not round intermediate calculations. Round your answers to the nearest cent.
The NPV for the existing credit policy, that is $ , is the NPV for the proposed credit policy, that is $ . Thus, Lewis Lumber change its credit policy.
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
Chapter 15 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 15.1 - Why is working capital management one of the most...Ch. 15.1 - Prob. 15.2RQCh. 15.1 - Prob. 15.3RQCh. 15.2 - Prob. 15.4RQCh. 15.2 - Prob. 15.5RQCh. 15.2 - What are the benefits, costs, and risks of an...Ch. 15.2 - Prob. 15.7RQCh. 15.3 - Prob. 15.8RQCh. 15.3 - Briefly describe the following techniques for...Ch. 15.3 - Prob. 15.10RQ
Ch. 15.4 - Prob. 15.11RQCh. 15.4 - Prob. 15.12RQCh. 15.4 - What are the basic tradeoffs in a tightening of...Ch. 15.4 - Prob. 15.14RQCh. 15.4 - Prob. 15.15RQCh. 15.4 - Prob. 15.16RQCh. 15.5 - Prob. 15.17RQCh. 15.5 - What are the firms objectives with regard to...Ch. 15.5 - Prob. 15.19RQCh. 15.5 - Prob. 15.20RQCh. 15.5 - Prob. 15.21RQCh. 15 - EOQ analysis Thompson Paint Company uses 60,000...Ch. 15 - Learning Goal 4 ST15- 3 Relaxing credit standards...Ch. 15 - Learning Goal 2 E15-1 Everdeen Inc. has a 90-day...Ch. 15 - Learning Goal 2 E15-2 Icy Treats Inc. is a...Ch. 15 - Prob. 15.3WUECh. 15 - Forrester Fashions has annual credit sales of...Ch. 15 - Prob. 15.1PCh. 15 - Learning Goal 2 P15-2 Changing cash conversion...Ch. 15 - Learning Goal 3 P15-5 EOQ analysis Tiger...Ch. 15 - EOQ, reorder point, and safety stock Alexis...Ch. 15 - Prob. 15.7PCh. 15 - Prob. 15.8PCh. 15 - Prob. 15.9PCh. 15 - Relaxation of credit standards Lewis Enterprises...Ch. 15 - Initiating an early payment discount Gardner...Ch. 15 - Shortening the credit period A firm is...Ch. 15 - Lengthening the credit period Parker Tool is...Ch. 15 - Prob. 15.14PCh. 15 - Prob. 15.15PCh. 15 - Prob. 15.16PCh. 15 - Prob. 15.18P
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- Axis Wells and Excavation (AWE) currently generates $198,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $189,000, and accounts receivable will average $12,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSOExisting: days DSONew: daysarrow_forwardNeed Correct Answerarrow_forwardB. Kings Company presents the following information: 1. Annual credit sales: P 25,200,000 2. Collection period: 3 months 3. Rate of return: 12% Kings company considers changing its credit term from n/30 to 3/10, 1/30. The following are expected to result: (1) 30% of its customers will take advantage of the discount; (2) sales will remain constant; and (3) the collection period is expected to decrease to two months Should the company implement the proposed discount policy? Why?arrow_forward
- vv. Axis Wells and Excavation(AWE) currently generates 55,000 in annual sales. AWE sells on terms of net 50, and it’s accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to 36,000, and accounts receivable will average 12,000. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days ina a year. Round your answer to the nearest whole number. DSO existing: Days DSO new: Daysarrow_forwardShow the solution in good accounting formarrow_forward-5 Klein's Tools is considering offering a cash discount to speed up the collection of accounts receivable. Currently the firm has an average collection period of 65 days, annual sales are 35,000 units, the per-unit price is $40, and the per-unit variable cost is $29. A 2% cash discount is being considered. Klein's Tools estimates that 80% of its customers will take the 2% discount. If sales are expected to rise to 37,000 units per year and the firm has a 15% required rate of return, what minimum average collection period is required to approve the cash discount plan?arrow_forward
- ACCOUNTS RECEIVABLE MANAGEMENT High Fashions Inc. has annual credit sales of 250,000 units with an average collection period of 70 days. The Company has a per-unit variable cost of P20 and per unit sale price of P30. Bad debts are currently at 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. High Fashions requires a 12% return on investment (i.e. cost of tying up funds in accounts receivable) Requirement: Should High Fashions Inc. relax its credit standards? Show all necessary calculations required to evaluate High Fashions Inc.’ proposed relaxation of credit standards.arrow_forwarda. Assume that the cost of goods sold is 60% and that the monthly discount rate is 1%. Looking at the values in the exhibit above, you note that the average monthly revenue for a subscribed customer rises as the company sends more emails. In addition, the average monthly revenue for an unsubscribed customer also rises as the company sends more emails. What could explain both of these patterns? b. Calculate the 6-month LTV for each of the four tested email frequencies. Please show the spreadsheet with your calculations and be clear about any assumptions you are making. c. Based on this test, how many emails-per-week should the company be sending to its customers? This email frequency should apply to all customers; the company doesn't want to implement a different email frequency for different kinds of peoplearrow_forwardMcGriff 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 Noarrow_forward
- Get Answerarrow_forwardGive answer of this Question pleasearrow_forwardThe Milton Company currently purchases an average of $27,000 per day in raw materials on credit terms of "net 40." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $30,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. a. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ b. If Milton stretches its accounts payable an extra 10 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $arrow_forward
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