A new financial manager at Jamison Company has proposed a change to the company's credit policy...
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A new financial manager at Jamison Company has proposed a change to the company's credit policy in order to lower the average collection period of the customers who forgo the discount by 10 days. The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 3% in gross sales as a result. The discount customers will not be affected. The proposed data, including the daily data, is reflected in the following table. I. General Credit Policy Information Credit terms (Average collection period (ACP) for all customers ACP for customers who take the discount (15%) ACP for customers who forgo the discount (85%) II. Annual Credit Sales and Costs ($ millions) Amount paid by discount customers Amount paid by nondiscount customers Net credit sales Variable operating costs (82% of net sales) Bad debts Credit evaluation and collection costs III. Daily Credit Sales and Costs ($ thousands) Net sales Amount paid by discount customers Amount paid by nondiscount customers Variable operating costs (82% of net sales) Credit evaluation and collection costs Existing Policy Proposed Policy 2/10 net 30 46.1 days 10.0 days 52.5 days $284 $1,445 $1,729 $1,418 $0.0 $170 $4,803 $789 $4,014 $3,939 $472 2/10 net 30 37.6 days 10.0 days 42.5 days $284 $1,394 $1,678 $1,376 $0.0 $180.00 $4,661 $789 $3,872 $3,822 $500 Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not the prope should not institute the proposed policy change, because the existing policy provides a net present value of hich provides a net present value of Since thi should kpected to have a permanent and continuing effect, this daily difference of will compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-d the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provides a net present value of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will $390 $362 $315 $4,768 the year, that used to compute compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and $4,634 costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy cha the proposed policy, which provides a net present value of $315 $338 $362 Juse the existing policy provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughou the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is the daily figures. Jamison's cost of capital is 5%. -$47 Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provid $134 t present value of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of $142 -$52 will the value to the year, und Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur everly the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provides a net increase e of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will decrease compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, an the daily figures. Jamison's cost of capital is 5%. $338,397 lowing sentences. $964,792 not institute the proposed policy change, because the existing policy provides a net pres $1,022,392 licy, which provides a net present value of $16,918,647 Je is expected to have a permanent and continuing effect, this daily difference of will A new financial manager at Jamison Company has proposed a change to the company's credit policy in order to lower the average collection period of the customers who forgo the discount by 10 days. The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 3% in gross sales as a result. The discount customers will not be affected. The proposed data, including the daily data, is reflected in the following table. I. General Credit Policy Information Credit terms (Average collection period (ACP) for all customers ACP for customers who take the discount (15%) ACP for customers who forgo the discount (85%) II. Annual Credit Sales and Costs ($ millions) Amount paid by discount customers Amount paid by nondiscount customers Net credit sales Variable operating costs (82% of net sales) Bad debts Credit evaluation and collection costs III. Daily Credit Sales and Costs ($ thousands) Net sales Amount paid by discount customers Amount paid by nondiscount customers Variable operating costs (82% of net sales) Credit evaluation and collection costs Existing Policy Proposed Policy 2/10 net 30 46.1 days 10.0 days 52.5 days $284 $1,445 $1,729 $1,418 $0.0 $170 $4,803 $789 $4,014 $3,939 $472 2/10 net 30 37.6 days 10.0 days 42.5 days $284 $1,394 $1,678 $1,376 $0.0 $180.00 $4,661 $789 $3,872 $3,822 $500 Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not the prope should not institute the proposed policy change, because the existing policy provides a net present value of hich provides a net present value of Since thi should kpected to have a permanent and continuing effect, this daily difference of will compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-d the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provides a net present value of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will $390 $362 $315 $4,768 the year, that used to compute compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and $4,634 costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy cha the proposed policy, which provides a net present value of $315 $338 $362 Juse the existing policy provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughou the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is the daily figures. Jamison's cost of capital is 5%. -$47 Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provid $134 t present value of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of $142 -$52 will the value to the year, und Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur everly the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Jamison's cost of capital is 5%. Complete the following sentences. Jamison should not institute the proposed policy change, because the existing policy provides a net increase e of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will decrease compared to the value to the firm by Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, an the daily figures. Jamison's cost of capital is 5%. $338,397 lowing sentences. $964,792 not institute the proposed policy change, because the existing policy provides a net pres $1,022,392 licy, which provides a net present value of $16,918,647 Je is expected to have a permanent and continuing effect, this daily difference of will
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Based on the provided data here is a summary of the proposed credit policy change at Jamison Company I General Credit Policy Information Existing Policy Credit terms of 210 net 30 Proposed Policy Cred... View the full answer
Related Book For
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg
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