(B) Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate. Compute for the required by filling up the supporting table. Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group? 7. Increase in gross profit Increase in receivables carrying cost 8. 9. Increase in bad debts 10. Net advantage or disadvantage of the plan Notes: 1. The Increase/(Decrease) column may be computed either by row or later once the Current and Proposed columns are complete. Some parts of the computations were omitted in the supporting table. These include turnovers and average balance as well as conversion of daily amounts to annual amounts. Students are assumed to know how to compute for these because they were taken up in the previous topics. 3. Be careful when computing for the net advantage or disadvantage. Increase in gross profit is favorable/advantageous but increase in expenses are not. 2. Supporting Table: Selling Price Less: Cost per box Gross profit per box Current Proposed Increase/(Decrease) Annual units to be sold Sales for the year Cost of sales for the year Gross profit for the year Working days in a year Divided by: Average age of receivables Receivables turnover Average receivables Multiplied by: Effective interest rate Implicit cost of carrying receivables

A company can issue a 45-day $10 million commercial paper at a rate of 4.50%. It can reduce the rate to 4.35% if it is backed by a standby letter of credit (SBLC). A bank is willing to issue the SBLC for a fee of 10 basis points. The following is true:   A The fee for issuing the SBLC is $10,000                                                                                                                                     B The net savings to the issuer is $1,250                                                                                                                            C The amount received by the issuer for the commercial paper without an SBLC is $9,945,625.                                                                                                                          D The difference in the amount received by the issuer with and without the SBLC is $1,875.

Dome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which is also the average collection period.  a. Assume the firm offers a 2 percent discount for payment in 15 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.)   Loss of: $_________

Ingraham Inc. currently has $500,000 in accounts receivable, and its days sales outstanding (DSO) is 44 days. It wants to reduce its DSO to 20 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 10%. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent

Cooper Stereos has a $22,500 line of credit which charges an annual percentage rate of prime rate plus 5.5%. Their starting balance on October 1 was $11,100. On October 10 they borrowed $5,500. On October 16 the business made a payment of $1,500, and on October 23 they borrowed $4,200. If the current prime rate is 6%, what is the new balance?