Silicon Wafers Inc., is debating whether or not to extend credit to a particular customer. Silicon's products, primarily used in the manufacture of semiconductors, currently sell for P1,140 per unit. The variable cost is P760 per unit. The order under consideration is for 15 units today; payment is promised in 30 days. Required: a. If there is a 20 percent chance of default, should Silicon fill the order? The required return is 2 percent per month. This is a one-time sale and the customer will not buy if credit is not extended. b. What is the break-even probability in (a)? C. In general terms, how do you think your answer to (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is P1,090 per unit.

Silicon Wafers Inc., is debating whether or not to extend credit to a particular customer. Silicon's products, primarily used in the manufacture of semiconductors, currently sell for P1,140 per unit. The variable cost is P760 per unit. The order under consideration is for 15 units today; payment is promised in 30 days. Required: a. If there is a 20 percent chance of default, should Silicon fill the order? The required return is 2 percent per month. This is a one-time sale and the customer will not buy if credit is not extended. b. What is the break-even probability in (a)? C. In general terms, how do you think your answer to (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is P1,090 per unit.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that the current price of titanium is $500 per oz with costless storage. The term structure is flat witha continuously compounded rate of interest of 4% for all maturities.a) Find the forward price of titanium with delivery in three months.b) Assume it costs $0.5 per oz per month to store titanium. The storage cost is payable monthly in advance.What is the new forward price? What can explain the price difference in (a) and (b)?c) Assume storage costs are as in (b) and payable monthly in advance. If the forward price is given to be$550 per oz, explain whether there is an arbitrage opportunity and how to exploit it. Use a table showingtransactions and total net cash flows at the end of each month.
Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices: $5,255 $5,240 $5,251 $5,260 $5,246
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Campbell Computing Inc. expects to have sales this year of $30 million under its current credit policy. The company offers a credit term of 2/8, net 20. Currently, 60 percent of paying customers take the discount and rest are paying on time. The bad debt loss is 2 percent. The company has a profit margin of 20%, and uses a 5% short-term bank loan to finance its accounts receivables. With 365-day a year assumption, please calculate the following items: a. The bad debt loss of the company this year b. The annual discount given to customers c. The accounts receivables level d. The financing cost of accounts receivables
ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $273,446 deficit and a 40% chance for no deficit at all. The line of credit charges 0.52% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 9% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices $5,313 $5,321 $5,304 $5,309 $5,317
A company is assessing granting credit to a new customer. The variable cost per unit is $88, the current price is $115, the probability of default is 34% and the monthly required return is 4.0%. Calculate the NPV of the switch. Assume the customer will purchase once.
Anti-Corona, a distributor of facial mask, predicts that it will purchase 306,000 masks next year. Anti-Corona estimates that 25,500 masks will be required each month. A supplier quotes a price of $10 per facial mask. The supplier also offers a special discount option: If all 306,000 masks are purchased at the start of the year, a discount of 3% off the $10 price will be given. Anti-Corona can invest its cash at 12% per year. It costs Anti-Corona $300 to place each purchase order. (a)What is the opportunity cost of interest forgone from purchasing all 306,000 units at the start of the year instead of in 12 monthly purchases of 25,500 units per order? (b) Should Anti-Corona purchase 306,000 units at the start of the year or 25,500 units each month? Show your calculations with reasons 4(c) The company is a multinational company with many branches in different countries around the world. The 12% for return on cash is based on expected return of cash in US. The company is planning to…
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Suppose that the curent price of titanium is $500 per oz with costless storage. The term structure is flat with a continuously compounded rate of interest of 4% for all maturities. a) Find the forward price of titanium with delivery in three months. b) Assume it costs S0.5 per oz per month to store titanium. The storage cost is payable monthly in advance. What is the new forward price? What can explain the price difference in (a) and (b)? c) Assume storage costs are as in (b) and payable monthly in advance. If the forward price is given to be S550 per oz, explain whether there is an arbitrage opportunity and how to exploit it. Use a table showing transactions and total net cash flows at the end of each month.
Your company is evaluating a switch from a cash policy to a net 30 policy. The price per unit is $49, and the variable cost per unit is $20. The company currently sells 100 units per month. Under the proposed policy, the company expects to sell 110 units per month. The required monthly return is 2%. a-What is the effective annualized rate for this “loan” triggered by the credit policy?
ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150,000 per year.The entity earns P30,000,000 in sales, 10% of which are cash. The entity has a 365-day year and a minimum required rate of return of 10%.The current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease by 30 days. How much is the net benefit or (cost) of this option?

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