Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 7, Problem 24P
Problems 22-25 are a series and should be completed in order.
What will be the net gain or loss to the firm if Dome offers a 3 percent discount for payment in 18 days, every customer takes advantage of the new terms, and Dome reduces its bank loans, which cost 12 percent, by the cash generated from its reduced receivables? Should it offer the discount? Use the credit sales of
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Dome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which is also the average collection period. a. Assume the firm offers a 2 percent discount for payment in 15 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.)
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Dome Metals has credit sales of $468,000 yearly with credit terms of net 60 days, which is also the average collection period.
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gain or loss be to the firm if this discount is offered? (Use a 360-day year.)
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b. Should the firm offer the discount?
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can you please help me to this account questions
Chapter 7 Solutions
Foundations of Financial Management
Ch. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Why would a financial manager want to slow down...Ch. 7 - Use The Wall Street Journal or some other...Ch. 7 - Why are Treasury bills a favorite place for...Ch. 7 - Explain why the bad debt percentage or any other...Ch. 7 - What are three quantitative measures that can be...Ch. 7 - Prob. 8DQCh. 7 - What does the EOQ formula tell us? What assumption...Ch. 7 - Why might a firm keep a safety stock? What effect...
Ch. 7 - If a firm uses a just-in-time inventory system,...Ch. 7 - City Farm Insurance has collection centers across...Ch. 7 - Prob. 2PCh. 7 - Orbital Communications has operating plants in...Ch. 7 - Postal Express has outlets throughout the world....Ch. 7 - Thompson Wood Products has credit sales of...Ch. 7 - Oral Roberts Dental Supplies has annual sales of...Ch. 7 - Knight Roundtable Co. has annual credit sales of...Ch. 7 - Darla’s Cosmetics has annual credit sales of...Ch. 7 - Barney’s Antique Shop has annual credit sales of...Ch. 7 - Mervyn’s Fine Fashions has an average collection...Ch. 7 - Route Canal Shipping Company has the following...Ch. 7 - Nowlin Pipe & Steel has projected sales of 72,000...Ch. 7 - Fisk Corporation is trying to improve its...Ch. 7 - Prob. 14PCh. 7 - Diagnostic Supplies has expected sales of 84,100...Ch. 7 - Wisconsin Snowmobile Corp. is considering a switch...Ch. 7 - Johnson Electronics is considering extending trade...Ch. 7 - Henderson Office Supply is considering a more...Ch. 7 - Fast Turnstiles Co. is evaluating the extension of...Ch. 7 - Slow Roll Drum Co. is evaluating the extension of...Ch. 7 - Global Services is considering a promotional...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...
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- Neveready Flashlights Inc. needs $340,000 to take a cash discount of 3/17, net 72. A banker will lend the money for 55 days at an interest cost of $10,400. Question 1 What is the effective rate on the bank loan? Group of answer choices 20.04% 3.06% 4.25% 10% Question 2 How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 72 days instead of 17 days? Group of answer choices 3.0% 97% 6.55% 15% Question 3 Should the firm borrow the money to take the discount? Group of answer choices No Yes I don't know Sometimes Question 4 If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $340,000? Group of answer choices $10,000 $1,000 $100,000 $425,000 Question 5 What would be the effective interest rate in part d if the interest charge for 55 days were $13,000? Should the firm borrow…arrow_forwardNeveready Flashlights Inc. needs $340,000 to take a cash discount of 3/17, net 72. A banker will lend the money for 55 days at an interest cost of $10,400. What is the effective rate on the bank loan? tion in mind. 20.04% 3.06% 4.25% 10% How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 72 days instead of 17 days? 3.0% 97% 6.55% 15% Should the firm borrow the money to take the discount? No Yes I don't know Sometimes If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $340,000? $10,000 $1,000 $100,000 ○ $425,000 What would be the effective interest rate in part d if the interest charge for 55 days were $13,000? Should the firm borrow with the 20 percent compensating balance? (The firm has no funds to count against the compensating balance requirement.) 3.0% 6.55% 6.0% 5.0%arrow_forwardSubject - account Please help me. Thankyou.arrow_forward
- Your firm sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all walt and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 8%, dally compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much should you raise your product prices? Do not round Intermediate calculations. Round your answer to the nearest whole number. %arrow_forwardPlease provide answer in text (Without image)arrow_forwardDome Metals has credit sales of $198,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 4/10, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 8 percent. The new credit terms will increase sales by 20% because the 4% discount will make the firm's price competitive. a. If Dome earns 25 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.) Net change in income b. Should the firm offer the discount? No Yesarrow_forward
- 3. Show solution in good accounting formarrow_forwardDome Metals has credit sales of $288,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 3/18, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 10 percent. The new credit terms will increase sales by 15% because the 3% discount will make the firm's price competitive. a. If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.) b. Should the firm offer the discount?arrow_forwardThe Patel Company has several financial issues to solve. As the company’s Financial Analyst you have been asked to answer the following 2 questions: Their bank will lend them $100,000 for 90 days at a cost of $1,200 interest. What is the company’s effective annual rate? A major supplier has granted credit terms of 1/10 N120. Assuming the company can borrow any amount of money at the rate you have calculated above (in part 1), should the company take the discount? (Your answer must be supported with a calculation of the cost of not taking the discount – using either simple or effective annual rate)arrow_forward
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