B1 (Pty) Limited, has annual credit sales of N$ 20 million. The present credit terms are...
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B1 (Pty) Limited, has annual credit sales of N$ 20 million. The present credit terms are 2/10, net 50. All sales are on credit and at the present 50% of the customers use the early settlement discount of 2%. The average collection period is 30 days and bad debts losses currently stand at 3% of sales for which discounts are not taken. During a board meeting it was resolved to change the company's credit policy. The proposal is to amend the credit terms to 3/10, net 30. It is envisaged under the new policy that 60% of the customers are expected to use the early settlement discount with the average collection period expected to decrease to 18 days. Bad debts are expected to decline to 2% of sales for which discounts are not taken. Sales is expected to decrease by N$ 2 million to N$ 18 million. The gross profit margin will remain unchanged at 25%. Assume that there are 360 days in a year. REQUIRED: a) Calculate the impact of the change in credit policy would have on net profit. b) Calculate the effective cost of trade creditor finance. B1 (Pty) Limited, has annual credit sales of N$ 20 million. The present credit terms are 2/10, net 50. All sales are on credit and at the present 50% of the customers use the early settlement discount of 2%. The average collection period is 30 days and bad debts losses currently stand at 3% of sales for which discounts are not taken. During a board meeting it was resolved to change the company's credit policy. The proposal is to amend the credit terms to 3/10, net 30. It is envisaged under the new policy that 60% of the customers are expected to use the early settlement discount with the average collection period expected to decrease to 18 days. Bad debts are expected to decline to 2% of sales for which discounts are not taken. Sales is expected to decrease by N$ 2 million to N$ 18 million. The gross profit margin will remain unchanged at 25%. Assume that there are 360 days in a year. REQUIRED: a) Calculate the impact of the change in credit policy would have on net profit. b) Calculate the effective cost of trade creditor finance.
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Answer A ITherefore B1 Pty Limited should refrain from ... View the full answer
Related Book For
Probability & Statistics for Engineers & Scientists
ISBN: 978-0130415295
7th Edition
Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying
Posted Date:
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