KK Corporation is analyzing its option to restrict its credit terms. Current sales level is P6,000,000, average receivables balance is P500,000, bad debts on sales is 10%. With the new policy, sales will be P5,000,000, average receivables balance will be P200,000, and bad debts on sales will be 2%. The variable cost rate is 60% and the effective cost of capital is 18%. Based on these available information, what is the net benefit/(cost) of this change in policy?
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- 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 receivables is 15%. Current credit sales are Rs. 300 crore and current level of receivables is Rs 30 crore. If credit terms are changed, the current sale is expected to change to Rs 360 crore and firm’s receivables level will also increase. The firm’s financial manager estimates that new level of credit terms will cause firm’s collection period to increase by 30 days. Determine the present collection period and the collection period after the proposed change in credit terms. What level of receivables is implied by the new…JJ Corporation is analyzing its option to restrict its credit terms. Current sales level is P6,000,000, average receivables balance is P500,000, bad debts on sales is 10%. With the new policy, sales will be P5,000,000, average receivables balance will be P200,000, and bad debts on sales will be 2% The variable cost rate is 60% and the effective cost of capital is 13%. Based on these available information, what is the net benefit/(cost) of ihis change in policy?KK Corporation is analyzing its option to restrict its credit terms. Current sales level is P6,000,000, average receivables balance is P500,000, bad debts on sales is 10%. With the new policy, sales will be P5,000,000, average receivables balance will be P200,000, and bad debts on sales will be 2%. The variable cost rate is 60% and the effective cost of capital is 18%. Based on these available information, what is the net benefit/(cost) of this change in policy?
- Reed plc is considering how to improve its debtor collection policy. The following information is available. Current Credit Sales: £912,000 Average debtor collection period (days): 94 days Wishing to introduce a new policy of payment within (days): 60 days Anticipated reduction in sales per year: £40,000 Increased collection costs per yer: £2,000 Short-term cost of borrowing (%): 30% Sales contribution to profit: 20% Required What will be the net benefit if Reed successfully enforces the new policy? When a corporation raises finance, there are two options: long-term debt finance (bank loan or corporate bonds) and equity finance (ordinary shares). The two approaches have fundamental consequences to the corporation. What are the main differences between the two approaches?ABC Corporation is deciding whether to change the credit term from 1/15, n/60 to 2/10, n/40 to speed up cash collections. Its original forecasted sales and average age of receivables are P7,000,000 and 63 days. With the new credit term, sales would decrease by 5% but the average age of receivables will be 42 days. ABC's variable cost rate is 55% while its weighted average cost of capital is 17%. How much is the benefit from the change in average receivable balance?A firm is considering relaxing credit standards, which will result in annual sales increasing from P1.5 million to P1.75 million, the cost of annual sales increasing from P1,000,000 to P1,125,000, 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? Format: 11,111.11
- Udar limited is considering a change in its credit terms from 2/10 net 30 to 3/10 net 45, change is expected to:a) increase total sales from 50 million to 60 million.b) decrease the proportion of customers taking discount from 70% to 60%.c) increase average collection period from 20 days to 24 days.The gross profit margin for the firm is 15% and cost of capital is 12%.The rate is 40%.Calculate the expected change in residual income.(Efficiency analysis) ALei Industries has credit sales of $143 million a year ALef's management revwed ts anddei t is the maximum level of accounts receivable that ALei can carry and have a 45-day average colledtion period? Leis current accounts receivable collection period is 55 days, how much would it have lo reduce its level of accounts recelvable in oander to adi a. What is the maximum level of accounts receivable that ALei can carry and have a 45-day average collection period? b. The maximum level of accounts receivable vilbe smillion Round to one decimal place) The maximum level of accounts receivable will be S million.The Blue Company has under study a new credit policy that they believe will increase annual sales from P11 million to P14 million. However, the new plan is also expected to increase bad debt losses from P800,000 to P1.2 million each year. The average collection period on collectible sales is now averaging 90 days. This ratio will increase to 120 days for both old and new slaes if the new credit policy is adopted. The increase in sales is expected to increase the company's investment in inventory by P20,000. Assuming a pre-tax reuired rate of return of 25% and a variable cost-to-sales ration of 60%, should the Blue Company adopt the new credit policy? Assume a 360-day year.
- In order to increase the sales from the normal level of Rs 2.4 Lakh per annum, the marketing manager submits a proposal for liberalizing credit policy as under: Normal sales Rs 2.4 lakh. Normal credit period 30 days. The firm is contemplating to increase the credit period to 75 days. This proposal would increase the sales by Rs 21000. The Profit Volume Ratio is 30%. The company expects a return of 20% on its investments. Evaluate the above alternative and advise the management (assume 360 days a year)The Branson Corporation is considering a change in its cash - only policy. The new terms would be net one period. The required return is 2.0 percent per period. Current Policy New Policy Price per unit $ 50 $ 52 Cost per unit $ 30 $ 30 Unit sales per month 2,000? What is the break - even quantity for the new credit policy?Hallmark, the greeting card company, is considering going online. It is anticipated that it will cost the firm RM 1 billion to do so and that the firm will be able to use its current debt capacity to borrow 20% of this investment, at an after-tax cost of 4.5%. Hallmark has a beta of 1.1. Online retailers have a beta of 1.50 and do not carry debt. If the riskless rate is 6% and the market risk premium is 5.5% estimate the cost of capital for the online investment.