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Your first major assignment after your recent promotion at To help in your decision on relaxing credit terms, you hav lce Nine involves overseeing the management of accounts receivable and inventory. The first item you must attend to involves a proposed change in credit policy which would involve relaxing eredit terms from the existing terms of !/50, net 70 to 2/60, net 90 in the hope of securing new sales. The management at lce Nine does not expect bad debt losses on its current customers to change under the new credit policy. 2 If a firm currently buys from Ice Nine on trade credit with The following information should aid you in the analysis of this problem: been asked to respond to the following questions: Questions I What determines the size of investment that Ice Nine makes in accounts receivable? New sales level (all credit) Original sales level (all credit) Cont ibution margin Percentage bad debt losses on new sales New average collection penod Original average collection period Additional investment in inventory Pre-tax required rate of ceturn New percentage canh diconnt Percentage of custon cah discount the present terms of 1/50, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annuafised cost to that firm of forgoing the discount? 3 If lce Nine changes its trade credit terms to 2/60, net 90 what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? 4 What is the estimated change in protits resulting from the increased sales less any additional bad debts aeciated with the proposol clange in credie policy S Estimate the cost of adlitional investment in acconts re- ceivable and inventory associated with the peoposed chunge ie credit policy 6 Estimate he change in the cosa of the cash dest a the proposed change in credit pliy in enaced 7 Cumpare xthe inremental nevees ih h coal cts Shld te pop chge he S8 000000 $7000000 25% 75 days 60 days S S0000 29 taking the new 50 Oiginal percetape cas discom Percctape fstomes taking the old Your first major assignment after your recent promotion at To help in your decision on relaxing credit terms, you hav lce Nine involves overseeing the management of accounts receivable and inventory. The first item you must attend to involves a proposed change in credit policy which would involve relaxing eredit terms from the existing terms of !/50, net 70 to 2/60, net 90 in the hope of securing new sales. The management at lce Nine does not expect bad debt losses on its current customers to change under the new credit policy. 2 If a firm currently buys from Ice Nine on trade credit with The following information should aid you in the analysis of this problem: been asked to respond to the following questions: Questions I What determines the size of investment that Ice Nine makes in accounts receivable? New sales level (all credit) Original sales level (all credit) Cont ibution margin Percentage bad debt losses on new sales New average collection penod Original average collection period Additional investment in inventory Pre-tax required rate of ceturn New percentage canh diconnt Percentage of custon cah discount the present terms of 1/50, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annuafised cost to that firm of forgoing the discount? 3 If lce Nine changes its trade credit terms to 2/60, net 90 what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? 4 What is the estimated change in protits resulting from the increased sales less any additional bad debts aeciated with the proposol clange in credie policy S Estimate the cost of adlitional investment in acconts re- ceivable and inventory associated with the peoposed chunge ie credit policy 6 Estimate he change in the cosa of the cash dest a the proposed change in credit pliy in enaced 7 Cumpare xthe inremental nevees ih h coal cts Shld te pop chge he S8 000000 $7000000 25% 75 days 60 days S S0000 29 taking the new 50 Oiginal percetape cas discom Percctape fstomes taking the old
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Managing the assets is extremely crucial for any business as daytoday operations greatly rely on it Its where you have got to draw money to pay your employees finance your companys daily expenses and ... View the full answer
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