Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
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
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Question
Chapter 26, Problem 12CQ
Summary Introduction
To explain: The cash benefit arises to B Airlines by the increase of accounts payable period.
Payable Period:
The time period starts when the company purchase raw material from supplier and pay cash back to the supplier this time period is the payable period. Generally large companies lengthen payable period to get the benefit of cash.
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Students have asked these similar questions
Last month, Bluesky announced that it would stretch out its bill payments from 30days to 45days. The reason given was that the company wanted to “control costs and optimize cash flow”. The increased payables will be in effect for all of the company’s 4,000 suppliers.
a). Why don’t all firms simply increase their payables period to shorten their cash cycles?
b). Bluesky lengthened its payables period to “control costs and optimize cash flow”. Exactly what is the cash benefit to Bluesky from this change?
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of
this change, its average collection period will decline from 47 to 36 days. Bad-debt expenses are expected to decrease from 1.6% to 1.1% of
sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The
sale price per unit is $57, and the variable cost per unit is $47. The firm has a required return on equal-risk investments of 11.2%. Evaluate
this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)
CCIDE
The reduction in profit contribution from a decline in sales is $
(Round to the nearest dollar. Enter as a negative number.)
The benefit from the reduced marginal investment in A/R is $
(Round to the nearest dollar.)
The cost savings from the reduction in bad debts is $. (Round to the nearest dollar.)
CVP analysis, changing revenues and costs.</b> Sunset Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Hamilton Air. Sunset’s fixed costs are $23,500 per month. Hamilton Air charges passengers $1,500 per round-trip ticket.
Calculate the number of tickets Sunset must sell each month to (a) break even and (b) make a target operating income of $10,000 per month in each of the following independent cases.
Required:
Sunset’s variable costs are $43 per ticket. Hamilton Air pays Sunset 6% commission on ticket price.
Sunset’s variable costs are $40 per ticket. Hamilton Air pays Sunset 6% commission on ticket price.
Sunset’s variable costs are $40 per ticket. Hamilton Air pays $60 fixed commission per ticket to Sunset. Comment on the results.
Sunset’s variable costs are $40 per ticket. It receives $60 commission per ticket from Hamilton Air. It charges its customers a delivery fee of $5 per ticket. Comment on the results.
Chapter 26 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 26 - Prob. 1CQCh. 26 - Prob. 2CQCh. 26 - Prob. 3CQCh. 26 - Cost of Current Assets Grohl Manufacturing, Inc.,...Ch. 26 - Prob. 5CQCh. 26 - Shortage Costs What are the costs of shortages?...Ch. 26 - Prob. 7CQCh. 26 - Prob. 8CQCh. 26 - Prob. 9CQCh. 26 - Prob. 10CQ
Ch. 26 - Prob. 11CQCh. 26 - Prob. 12CQCh. 26 - Prob. 1QPCh. 26 - Cash Equation Blizzard Corp. has a book value of...Ch. 26 - Changes in the Operating Cycle Indicate the effect...Ch. 26 - Prob. 4QPCh. 26 - Calculating Cash Collections The Litzenberger...Ch. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Calculating Payments The Thakor Corporations...Ch. 26 - Calculating Cash Collections The following is the...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 15QPCh. 26 - Prob. 1MCCh. 26 - Rework the cash budget and short-term financial...Ch. 26 - Rework the sales budget assuming an 11 percent...
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