Question

A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm’s required return on investments is 20 percent. The firm’s cost of marginal investment in accounts receivable is
(a)$5,556. (b)$9,943. (c)$12,153. (d)$152,778.

The General Chemical Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is $150 per order. The firm uses the chemical at a constant rate throughout the year. It takes 18 days to receive an order once it is placed. The reorder point is
(a) 7,500 gallons. (b) 25,000 gallons. (c) 90,000 gallons. (d) 105,000 gallons.

dudu Inc.'s stock has a 50% chance of producing a 20% return, a 25% chance of producing a 8% return, and a 25% chance of producing a 16% return. What is DUWAG's expected value of return?

A. 16%

B. 34%

C. 0%

D. NONE OF THE CHOICES

Answer 1