Question

Dome Metals has credit sales of $432,000 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 11 percent. The new credit terms will increase sales by 10% 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.) b. Should the firm offer the discount? No Yes

Answer #1

Dome Metals has credit sales of $504,000 yearly with credit
terms of net 60 days, which is also the average collection period.
Assume the firm adopts new credit terms of 3/18, net 60 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 10 percent. The new credit terms will increase sales by
15% because the 3% discount will make the firm's...

Dome Metals has credit sales of $396,000 yearly with credit
terms of net 45 days, which is also the average collection period.
Assume the firm adopts new credit terms of 3/18, net 45 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 10 percent. The new credit terms will increase sales by
15% because the 3% discount will make the firm's...

Dome Metals has credit sales of $288,000 yearly with credit
terms of net 120 days, which is also the average collection period.
Assume the firm adopts new credit terms of 3/18, net 120 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 10 percent. The new credit terms will increase sales by
15% because the 3% discount will make the firm's...

Dome Metals has credit sales of $414,000 yearly with credit
terms of net 60 days, which is also the average collection period.
Assume the firm adopts new credit terms of 4/10, net 60 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 10 percent. The new credit terms will increase sales by
20% because the 4% discount will make the firm's...

Dome Metals has credit sales of $396,000 yearly with credit
terms of net 45 days, which is also the average collection period.
Assume the firm adopts new credit terms of 3/18, net 45 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 10 percent. The new credit terms will increase sales by
15% because the 3% discount will make the firm's...

Dome Metals has credit sales of $234,000 yearly with credit
terms of net 30 days, which is also the average collection period.
Assume the firm adopts new credit terms of 2/18, net 30 and all
customers pay on the last day of the discount period. Any reduction
in accounts recevable will be used to reduce the firm's bank loan
which costs 10 percent The new credit terms will increase sales by
10% because he 2% discount will make the firm's...

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Item 20
Item 20 2 points
Dome Metals has credit sales of $486,000 yearly with credit
terms of net 90 days, which is also the average collection period.
Assume the firm adopts new credit terms of 4/15, 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....

A firm has credit sales of 144,000 yearly with credit terms 30
days that is also the average collection period and no discount for
early payment. Now it considers new trade terms of 2/10 net 30
days.
What would be the incremental decrease in account receivables if
the new trade terms are accepted by all customers?

The credit terms of a firm currently is “net 30”. It
is considering to change it to “net 60”. This will have the effect
of increase in firm’s sales. As the firm will not relax credit
standards, the bad debt losses are expected to remain at same
percentage, that is, 3% of sales. Incremental production, selling
and collection costs are 80% of sales and expected to remain
constant over the range of anticipated sales increases. The
relevant opportunity cost for...

The Danu Ltd is considering to introduce a cash discount. The
company credit terms are “net 30” and would like to change to
“1/15, net 30”. The current average collection period is 45 days
and is expected to decrease to 20 days with the new credit terms.
It is expected that 50% of customers will take the advantage of the
changed credit terms. Danu’s annual sales are Rs. 8,000,000 and
required rate of return is 13%. Assume corporate tax rate...

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