Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 37 to 28 days. Bad-debt expenses are expected to decrease from 1.7% to 0.9% of sales. The firm is currently selling 11,900 units but believes that as a result of the proposed change, sales will decline to 9,900 units. The sale price per unit is $54, and the variable cost per unit is $44. The firm has a required return on equal-risk investments of 12.5%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution from a decline in sales is $ negative number.) (Round to the nearest dollar. Enter as a Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 37 to 28 days. Bad-debt expenses are expected to decrease from 1.7% to 0.9% of sales. The firm is currently selling 11,900 units but believes that as a result of the proposed change, sales will decline to 9,900 units. The sale price per unit is $54, and the variable cost per unit is $44. The firm has a required return on equal-risk investments of 12.5%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution from a decline in sales is $ negative number.) (Round to the nearest dollar. Enter as a
Expert Answer:
Answer rating: 100% (QA)
To evaluate the decision of shortening the credit period and make a recommendation to the firm we ne... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
Students also viewed these finance questions
-
A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
If a company is very diversified, (a) it makes it easier to classify the company by industry. (b) it would not be necessary to provide any segmented information. (c) it can limit the usefulness of...
-
In your textbook on page 257 it lists the World's 10 Most Valuable Brands in 2009. As you know from your readings this week, there are six different brand elements that help us to identify and...
-
"We experimented with a numerical scoring model some years back -- it just didn't work. Brought in all the senior people, sales managers, product managers, you name it. We selected several dimensions...
-
Stone Brewing Co. is a San Diego brewer that has sold its beers for over two decades. Stone has maintained its trademark and brand from the beginning, registering the STONE mark in 1998. Stone has...
-
University Hospital has been concerned with the number of errors found in its billing statements to patients. An audit of 100 bills per week over the past 12 weeks revealed the following number of...
-
Defining the database management system and identifying the differences between a database and a database management system (DBMS) or relational database management system (RDBMS). Please provide the...
-
The power cycle for an internal combustion engine can be idealized as a reversible Otto cycle operating with air. The engine in this study has a compression ratio r = 9 and the intake pressure that...
-
A ticker tape machine recorded the motion of a dynamics cart. The dots were uniformly spaced on the tape. What does uniformspacing indicate?
-
32) Many roller coasters begin with a motor pulling the carts to the top of a large hill. A larger initial hill allows the roller coaster to travel for a longer period of time. why is this the case?...
-
Evaluate the following limit. Enter the exact answer. If the limit does not exist, enter DNE. lim(+) = 3-3) . 3 -
-
A toy train car of mass 5 0 kg collides with a stationary empty car of mass 1 5 kg while moving 5 m / s . At the collision the cars couple together. What is the final velocity of the moving pair?
-
A wheel is spinning with the period of 0 . 1 9 seconds. a point on the rim is moving with the speed of 7 . 4 m / s . Calculate the diameter of the wheel
-
ABC ltd purchased a mchine for $50,000 and is depreciating it using the straight line method over a life of 10 years, with a residual value of $2000. At the begining of the sixth year, a major...
-
Subprime loans have higher loss rates than many other types of loans. Explain why lenders offer subprime loans. Describe the characteristics of the typical borrower in a subprime consumer loan.
-
What three tax situations may result from the sale of an asset that is being replaced?
-
Perpetuities Consider the data in the following table. Determine the present value of eachperpetuity. Perpetuity Annual amount Discount rate 20,000 100,000 3,000 60,000 8% 10
-
During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it held in...
-
What is the effect of the moral hazard problem on insurance premiums? Explain your answer.
-
The total cost of government regulations in the U.S. manufacturing sector was estimated by the National Association of Manufacturers to be about $2 trillion in 2012, or $15,400 per family. a. Do the...
-
Who would benefit and who would lose if an informational alternative to licensing doctors were introduced?
Study smarter with the SolutionInn App