# Dome Metals has credit sales of $378,000 yearly with credit terms of net 60 days, which is

## Question:

Dome Metals has credit sales of $378,000 yearly with credit terms of net 60 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 60 days to pay

. a. What is the average receivables balance? (Use a 360-day year.) **AVERAGE RECIEBLES BALANCE**

b. What is the receivables turnover? ? (Use a 360-day year.) **RECIEVABLES TURNOVER**

Dome Metals has credit sales of $126,000 yearly. If Dome offers a 4 percent discount for payment in 18 days, what would the average accounts receivable balance be? Assume all customers would pay on the last day of the discount period. (Use a 360-day year.)

**AVERAE RECIEIVABLE BALANC**E

Dome Metals has credit sales of $486,000 yearly with credit terms of net 90 days, which is also the average collection period.

a. Assume the firm offers a 4 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 12 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.)

**NET CHANGE IN INCOME**

b. Should the firm offer the discount?

**Yes No** Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days, which is also the average collection period. Assume the firm adopts new credit terms of 2/15, net 90 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 12 percent. The new credit terms will increase sales by 20% because the 2% discount will make the firm's price competitive.

a. If Dome earns 15 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 Yes**

**Related Book For**

## Foundations of Financial Management

ISBN: 978-1259194078

15th edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen