Question

Microbiotics currently sells all of its frozen dinners cash-on-delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $90, and the cost per carton is $60. The unit sales will increase from 1,040 cartons to 1,100 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.

a. If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)

c. Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer #1

Please find below table useful to compute desired results: -

End results would be as follows: -

Microbiotics currently sells all of its frozen dinners cash on
delivery but believes it can increase sales by offering
supermarkets 1 month of free credit. The price per carton is $140,
and the cost per carton is $85. The unit sales will increase from
1,090 cartons to 1,150 per month if credit is granted. Assume all
customers pay their bills and take full advantage of any credit
period offered.
a. If the interest rate is 1% per month, what will...

Phoenix Lambert currently sells its goods cash-on-delivery.
However, the financial manager believes that by offering credit
terms of 2/10 net 30, the company can increase sales by 20%,
without significant additional costs. If the interest rate is 6%
and the profit margin is 8%, would you recommend offering credit?
Assume first that all customers take the cash discount. Then assume
they all pay on day 30.
Joe’s hint: I would start by
assuming the company has $100 in sales, and...

Codiac Corp. currently has an all-cash credit policy. It is
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of net 30 days. The required return is 0.79% per month.
Current Policy
New Policy
Price per unit
$
190
$
194
Cost per unit
$
146
$
150
Unit sales per month
1,410
1,450
Calculate the NPV of the decision to change credit policies.
(Negative answer should be indicated by a minus sign. Do
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McEwan Industries sells on terms of 3/10, net 40. Total sales
for the year are $1,870,500; 40% of the customers pay on the
10th day and take discounts, while the other 60% pay, on
average, 82 days after their purchases. Assume 365 days in year for
your calculations.
What is the days sales outstanding? Round your answer to two
decimal places.
What is the average amount of receivables? Round your answer to
the nearest cent. Do not round intermediate
calculations....

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for the year are $1,461,000; 40% of the customers pay on the
10th day and take discounts, while the other 60% pay, on
average, 50 days after their purchases. Assume 365 days in year for
your calculations.
What is the days sales outstanding? Round your answer to two
decimal places.
days
What is the average amount of receivables? Round your answer to
the nearest cent. Do not round intermediate...

McEwan Industries sells on terms of 3/10, net 40. Total sales
for the year are $1,775,000; 40% of the customers pay on the
10th day and take discounts, while the other 60% pay, on
average, 52 days after their purchases. Assume 365 days in year for
your calculations.
What is the days sales outstanding? Round your answer to two
decimal places.
days
What is the average amount of receivables? Round your answer to
the nearest cent. Do not round intermediate...

McEwan Industries sells on terms of 3/10, net 25. Total sales
for the year are $746,500; 40% of the customers pay on the
10th day and take discounts, while the other 60% pay, on
average, 52 days after their purchases. Assume 365 days in year for
your calculations.
What is the days sales outstanding? Round your answer to two
decimal places.
days
What is the average amount of receivables? Round your answer to
the nearest cent. Do not round intermediate...

You’ve just joined the investment banking firm of Dewey,
Cheatum, and Howe. They’ve offered you two different salary
arrangements. You can have $7,300 per month for the next three
years, or you can have $6,000 per month for the next three years,
along with a $32,500 signing bonus today. Assume the interest rate
is 8 percent compounded monthly.
If you take the first option, $7,300 per month for three years,
what is the present value? (Do not round intermediate
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Problem 28-10 Credit Policy Evaluation
Leeloo, Inc., is considering a change in its cash-only sales
policy. The new terms of sale would be net one month. The required
return is .62 percent per month.
Current Policy
New Policy
Price per unit
$
760
$
760
Cost per unit
$
555
$
555
Unit sales per month
820
870
Calculate the NPV of the decision to switch. (Do not
round intermediate calculations and round your answer to 2 decimal...

RECEIVABLES INVESTMENT
Leyton Lumber Company has sales of $11 million per year, all on
credit terms calling for payment within 30 days, and its accounts
receivable are $1.98 million. Assume 365 days in year for your
calculations.
A. What is Leyton's DSO? Do not round intermediate
calculations.Round your answer to two decimal places.
days
B. What would DSO be if all customers paid on time? Do not round
intermediate calculations. Round your answer to two decimal
places.
days
C. How...

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