Soler Inc. wishes to speed up collection of its receivables. Soler currently offers credit terms of net 30. It is considering changing to terms of 2/10 net 20. The collection period is expected to be reduced from 40 to 25 days. The percentage of customers paying within the discount period is expected to be 60 percent. Bad debt losses average 6 percent of sales and are expected to decrease to 5 percent under the proposed policy
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Soler Inc. wishes to speed up collection of its receivables. Soler currently offers credit terms of net 30. It is considering changing to terms of 2/10 net 20. The collection period is expected to be reduced from 40 to 25 days. The percentage of customers paying within the discount period is expected to be 60 percent.
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- Panda Co. is planning to change its collection policies that will change the collection period from 5 days to 10 days. The daily projected credit sales for the upcoming year of the company is P40,000. Prevailing rates are expected at 3%. To make the change in collection policy cost-beneficial, the minimum savings in collection cost for the coming year should be?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: daysPeanut Inc. is evaluating whether to change its credit terms from 2/10 net 30 to 3/10 net 30. At present, 50% of Peanut's sales are paid at day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on day 30 whereas the remainder will pay 15 days late (no bad debts exist). But as a result of the higher cash discount offered with the new terms, sales are expected to increase from 757,000 to 801,000 per year. Peanut's variable cost ratio is 75% and its cost of funds is 8.7%. All production costs are paid on the day of the sale. Should the change be made?
- DBA Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40% of Sonata Company‘s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. DBA’s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9 %, and the firm’s income tax rate is 40%. Required: What is the days sales outstanding (DSO) before the change of credit policy? What is the days sales outstanding (DSO) after the change of credit policy? How much is the…A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and will reduce the ratio of credit sales to total revenue from 70% - 60%. The company estimates that projected sales would be 5% less if the proposed new credit policy is implemented. If projected sales for the coming year are P50 million, calculate the estimated peso change in the firm's account receivable balance caused by this proposed change in credit policy. Assume a 365-day year. [Answer format: INCREASE 1234567]Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 12,000 to 13,200 units during the coming year; the average collection period is expected to increase from 50 to 70 days; and bad debts are expected to increase from 1% to 2.5% of sales. The sale price per unit is $41, and the variable cost per unit is $29. The firm's required return on equal-risk investments is 9%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.) The additional profit contrbution from an increase in sales is $ ? (round to the nearest dollar) The cost from the increased marginal investment in A/R is $ ? (round to the nearest dollar)
- Sonata Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40 percent of Sonata Company’s customers take the 2 percent discount. Under the new term, discount customers are expected to rise to 50 percent. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2 percent level. However, the more generous cash discount terms are expected to increase sales from 2 million to 2.6 million per year. Santa Company’s variable cost ratio is 75 percent, the interest rate on funds invested in accounts receivable is 9 per-cent, and the firm’s income tax rate is 40 percent. (Adapted Comprehensive Reviewer in MAS 2010 Edition, Apolinario D. Bobadilla) Determine the following: The days sales…Edward Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 10,000 to 11,000 units during the coming year, the Average Collection Period is expected increase from 45 to 60 days; and Bad Debts are expected to increase from 1% to 3% of sales. The Sale Price per unit is $40, and the Variable Cost per unit is $31. The firm’s required on equal-risk investment is 25%. A. What is the Net Gain or Los from implementing the Proposed Plan? (Format: 1,111 G or 1,111 L) B. Would you recommend the Proposed Relaxation? (Format: Yes or No)CJ Stores has current cash-only sales of 218 units per month at a price of $236.55 a unit. If it switches to a net 30 credit policy, the credit sales price will be $249 while the cash price will remain at $236.55. The switch is not expected to affect the sales quantity but a 3 percent default rate is expected. The monthly interest rate is 1.4 percent. What is the net present value of the proposed credit policy switch? a. 24,727 b. 27,965 c. 26,893 d. 29,481 e. 25,978
- Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 5% from 10,000 to 10,500 units during the coming year; the average collection period is expected to increase from 40 to 55 days; and bad debts are expected to increase from 2% to 4% of sales. The sale price per unit is $39, and the variable cost per unit is $29. The firm's required return on equal-risk investments is 9.4%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note:Assume a 365-day year.) a. the cost from the increased marginal investment in A/R is? (round to nearest dollar) b. the cost from an increase in bad debts.? (round to nearest dollar) c. compute the net profit from the proposed plan.Farmers World, a firm specializing in fertilizers, is evaluating a proposal to relax the credit standards to increase sales. The implemen- tation of this plan is expected to increase sales by 10% from 15,500 to 17,050 units in the following year. The average collection period will increase from 30 to 45 days, and bad debts are expected to increase from 2% to 5% of sales. The selling price per bag is $15, and the variable cost per bag is $12. The required rate of return on equal-risk investments is 22%. Should the proposed plan be implemented? Explain the financial impact. (Note: Assume a 365-day year.) Exercises January February March Dynabase Tool has forecast its total funds requirements for the coming year as shown in the following table. Month Month Amount April May June Exercises Amount $2,000,000 2,000,000 2,000,000 4,000,000 6,000,000 9,000,000 July August September October November December $12,000,000 14,000,000 9,000,000 5,000,000 4,000,000 3,000,000 16 a. Divide the firm's…Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…