EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 16, Problem 25P
a)
Summary Introduction
To determine: The annual financing cost.
b)
Summary Introduction
To determine: The annual financing cost.
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ALei Industries has credit sales of
$146
million a year. ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of
35
days.
a. What is the maximum level of accounts receivable that ALei can carry and have a
35-day
average collection period?
b. If ALei's current accounts receivable collection period is
55
days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of
35
days?
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…
Harrelson Inc. currently has $750,000 in accounts receivable, and its days sales
outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring
more of its customers to pay their bills on time. If this policy is adopted the company's
average sales will fall by 15 percent. What will be the level of accounts receivable
following the change? Assume a 365 day year.
Chapter 16 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 16 - Prob. 1QTDCh. 16 - Prob. 2QTDCh. 16 - Prob. 3QTDCh. 16 - Prob. 4QTDCh. 16 - Prob. 5QTDCh. 16 - Prob. 6QTDCh. 16 - Prob. 7QTDCh. 16 - Prob. 8QTDCh. 16 - Prob. 9QTDCh. 16 - Prob. 10QTD
Ch. 16 - Prob. 11QTDCh. 16 - Prob. 12QTDCh. 16 - Prob. 13QTDCh. 16 - Prob. 14QTDCh. 16 - Prob. 15QTDCh. 16 - Prob. 16QTDCh. 16 - Prob. 17QTDCh. 16 - Prob. 18QTDCh. 16 - Prob. 19QTDCh. 16 - Prob. 20QTDCh. 16 - Prob. 21QTDCh. 16 - Prob. 22QTDCh. 16 - Prob. 23QTDCh. 16 - Prob. 24QTDCh. 16 - Prob. 1PCh. 16 - Prob. 2PCh. 16 - Prob. 3PCh. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Prob. 6PCh. 16 - Prob. 7PCh. 16 - Prob. 8PCh. 16 - Prob. 9PCh. 16 - Prob. 10PCh. 16 - Prob. 11PCh. 16 - Prob. 12PCh. 16 - Prob. 13PCh. 16 - Prob. 14PCh. 16 - Prob. 15PCh. 16 - Prob. 16PCh. 16 - Prob. 17PCh. 16 - Prob. 18PCh. 16 - Prob. 19PCh. 16 - Prob. 20PCh. 16 - Prob. 21PCh. 16 - Prob. 22PCh. 16 - Prob. 23PCh. 16 - Prob. 24PCh. 16 - Prob. 25PCh. 16 - Prob. 26PCh. 16 - Prob. 27PCh. 16 - Prob. 28PCh. 16 - Prob. 29PCh. 16 - Prob. 30PCh. 16 - Prob. 31PCh. 16 - Prob. 32PCh. 16 - Prob. 33PCh. 16 - Prob. 34P
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- James Inc. currently has P750,000 in accounts receivable, and its day sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 15%. What will be the level of accounts receivable following the change? Assume a 365-day year.arrow_forwardEverbusiness Corporation has been reviewing its credit policies. The credit standard it has been applying have resulted in an annual credit sales of $5,000,000.00. Its average collection period is 30 days with a bad debts/loss ratio of 1%. Everbusiness Corporation is considering a reduction in its credit standards. As a result, it expects incremental credit sales of $400,000.00 of which the average collection period would be 60 days, in which the bad BCR to sales for Everbusiness Corporation is 70%. The required investment on receivables is 15%. Evaluate the relaxation in credit standards that Everbusiness Corporation is considering. Use 0.04% per year/365 days. Provide detailed explanation and solutions.arrow_forward1)Farmers World, a firm specializing in fertilizers, is evaluating a proposal to relax the credit standards to increase sales. The implementation 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. (Note: Assume a 365-day year.)2)Pebbles & Stone Enterprise currently sells on credit only and does not offer any discounts. In an attempt to increase sales, the board is considering offering a 5% discount for payment within 15 days. Currently, the average collection period is 60 days, sales are 30,000 units, selling price is $40 per unit, and variable cost per unit is $32. If the discount is implemented, it is expected that sales will…arrow_forward
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