Credit screening Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,000 cash-paying customers and makes a profit of $60 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,100 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $240 to make a yuu, which retails for $300. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? (Round to the nearest dollar.)

Credit screening Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,000 cash-paying customers and makes a profit of $60 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,100 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $240 to make a yuu, which retails for $300. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? (Round to the nearest dollar.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 3,500 cash-paying customers and makes a profit of $80 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,100 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $230 to make a yuu, which retails for $310. Screendoor, Inc. is a credit-screening consulting firm. Screendoor advises Tennindo, Inc. that it can offer a credit-screening device that is 92% accurate and costs $5 per customer to apply. Determine whether Tennindo should use Screendoor's credit-screening system. What is Tennindo's profit by adding credit sales for customers without using Screendoor's credit-screening system? (Round to the nearest dollar.) What is Tennindo's profit by adding credit sales for customers with using…
Credit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,500 cash-paying customers and makes a profit of $70 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,400 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $220 to make a yuu, which retails for $290. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without…
The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. Compute the lifetime value using a 10% discount rate. The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. AMEX enters the market and the customer lifetime reduces to 3 years. Compute the lifetime value of VISA using a 10% discount rate. The average credit card customer for VISA has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $30, $42, $44, $49, and $55 in customer profit. AMEX enters the market and expect similar revenues but a retention rate of 75%. Compute the lifetime value of AMEX using a 10% discount rate.
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes. 1.Compute the incremental income after taxes that would result from these projections: 2.Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers… 3.Compute the additional investment in Accounts Receivable 4.Compute the incremental Return on New Investment…
Terms of Sale. 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 $50, and the cost per carton is $40. a. if unit sales will increase from 1,000 cartons to 1,060 per month, what is the expected profit from offering the credit? The interest rate is 1% per month, and all customers will pay their bills. b. what if the interest rate is 1.5% per month? c. what if the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while old customers will continue to pay cash on delivery?
ABC Distributing Company sells small appliances to hardware stores. The President of the Company thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a 1/10, net 30, and the new policy would call for a 3/10, net 50. Currently 40% of the customers are taking the discount, and it is anticipated that this number would go up to 50% with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $250,000 because of the change in the cash discount policy. The increased sales would also affect the inventory level. The average inventory carried by Company is based on a determination of an EOQ. Assume unit sales of small appliances will increase from 20,000 to 25,000 unit. The ordering cost for each is $100 and the carrying cost is based on EOQ/2. Each unit in inventory has an average cost of $6.50. CoGS is equal to 65% of net sales; general and adm. expenses…
Portland Savings and Loan is considering new computersoftware, which, because of installation and training cost,will have an unusual pattern of net receipts. The expected receiptsare: $20,000 in year 1, nothing in the next yea r, $30,000 in year 3,and $50,000 in year 4. At an interest rate of 6% what is the presentvalue of these receipts?
BUILDING CREDIT COST INTO PRICES Your firm sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 9%, daily compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much should you raise your product prices?
Electronic Supply can reduce its collection time by one day if it installs a lockbox system at a cost of $2,200 a year plus $.52 per transaction. It receives an average of 136 payments per day with an average payment of $7,980 each. The interest rate on money market securities is 3.98 percent. Assume a year has 365 days. What is the NPV of the lockbox system? Multiple Choice $156,727 $368,654 $274,208 O $421,730 $226,203
Bethany Iron and Steel is evaluating possible economic advantages of being involved in electronic commerce. A modest e-commerce package is available for $30,000. If the company wants to recover the cost in 2 years, what is the equivalent amount of new income that must be realized every 6 months at an interest rate of 12% per year compounded quarterly? Solve using two of the following three approaches: factor formula, calculator, and spreadsheet.
Smith Inc. currently fills mail orders from all over the country and receipts were received in its head office. The company's average accounts receivable is P3,125,000 and is financed by a bank loan with 10% interest. Smith is considering a regional lockbox system to speed up collections. This system is projected to reduce the average accounts receivable by 15%. The annual cost of the lockbox system is P25,000. What is the estimated net annual savings in implementing the lockbox system? A. 22,985 B. 28,455 C. 25,750 D. 21,875