Please provide Answer with calculation and explanation Lewis Enterprises is considering relaxing its credit standards to increase itscurrently sagging sales. As a result of the proposed relaxation, sales areexpected to increase by 10% from 13,000 to 14,300 units during the comingyear; the average collection period is expected to increase from 45 to 65days; and bad debts are expected to increase from 11% to 33% of sales. Thesale price per unit is $40, and the variable cost per unit is $31. The firm'srequired return on equal-risk investments is 25.3%.Evaluate the proposed relaxation, and make a recommendation to the firm.(Note: Assume a 365-day year.) The additional profit contribution from anincrease in sales is?

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Answered: Lewis Enterprises is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10P

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Edward Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 10,000 to 11,000 units during the coming year, the Average Collection Period is expected increase from 45 to 60 days; and Bad Debts are expected to increase from 1% to 3% of sales. The Sale Price per unit is $40, and the Variable Cost per unit is $31. The firm’s required on equal-risk investment is 25%. A. What is the Net Gain or Los from implementing the Proposed Plan? (Format: 1,111 G or 1,111 L) B. Would you recommend the Proposed Relaxation? (Format: Yes or No)
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Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 5% from 10,000 to 10,500 units during the coming year; the average collection period is expected to increase from 40 to 55 days; and bad debts are expected to increase from 2% to 4% of sales. The sale price per unit is $39, and the variable cost per unit is $29. The firm's required return on equal-risk investments is 9.4%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note:Assume a 365-day year.) a. the cost from the increased marginal investment in A/R is? (round to nearest dollar) b. the cost from an increase in bad debts.? (round to nearest dollar) c. compute the net profit from the proposed plan.
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Farmers World, a firm specializing in fertilizers, is evaluating a proposal to relax the credit standards to increase sales. The implemen- tation of this plan is expected to increase sales by 10% from 15,500 to 17,050 units in the following year. The average collection period will increase from 30 to 45 days, and bad debts are expected to increase from 2% to 5% of sales. The selling price per bag is $15, and the variable cost per bag is $12. The required rate of return on equal-risk investments is 22%. Should the proposed plan be implemented? Explain the financial impact. (Note: Assume a 365-day year.) Exercises January February March Dynabase Tool has forecast its total funds requirements for the coming year as shown in the following table. Month Month Amount April May June Exercises Amount $2,000,000 2,000,000 2,000,000 4,000,000 6,000,000 9,000,000 July August September October November December $12,000,000 14,000,000 9,000,000 5,000,000 4,000,000 3,000,000 16 a. Divide the firm's…
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