EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 18, Problem 2P
a)
Summary Introduction
To determine: The average collection period.
b)
Summary Introduction
To determine: The new level of receivables investment.
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Tara’s Textiles currently has credit sales of $360 million per year and an average collection period of 60 days. Assume that the price of Tara’s products is $60 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20% increase in sales and a 20% increase in the average collection period. No change in bad debts is expected. The firm’s equal-risk opportunity cost on its investment in accounts receivable is 14%. (Note: Use a 365-day year.)
Calculate the additional profit contribution from sales that the firm will realize if it makes the proposed change.
What marginal investment in accounts receivable will result?
Calculate the cost of the marginal investment in accounts receivable.
Should the firm implement the proposed change? What other information would be helpful in your analysis?
Zed’s Textiles currently has Credit Sales of $360 million per year and an Average Collection Period of 60 days. Assume that the price of Zed’s products is $60 per unit and that the Variable Costs are $55 per unit. The firm is considering accounts receivable changes that will result in a 20% increase in sales and a 20% increase in the Average Collection Period. No change in Bad Debts is expected. The firm’s equal-risk Opportunity Cost on its investment in Accounts Receivable is 14%. (Note: Use a 365-day year)
A. Calculate the Additional Profit Contribution from sales that the firm will realize if it makes the proposed change. (Format: 1,111,111)
B. What Marginal Investment in Accounts Receivable will result? (Format: 1,111,111)
C. Calculate the Cost of the Marginal Investment in Accounts Receivable. (Format: 1,111,111)
A manufacturer currently prices its product at 10 TL per unit. Last year, the manufacturer sold 60.000 units. The variable cost per unit is 6 TL. Total fixed costs are 120.000 TL. The manufacturer intends to increase sales by 5%. Current accounts receivable collection period is 30 days. If the manufacturer wants to relax its credit standards, the expectation is that bad debt expenses will increase from 1% of sales to 2% of sales. The opportunity cost of investing in accounts receivables is 15%. In order to benefit from relaxing its credit standards, what would be the expected maximum accounts receivable collection period? (Assume that existing customers are not expected to alter their payment habits. 1 year = 365 days)
a) 82,38 days
b) 63,33 days
c) 105,82 days
d) 63,73 dayse) other
Chapter 18 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 18 - Prob. 1QTDCh. 18 - Prob. 2QTDCh. 18 - Prob. 3QTDCh. 18 - Prob. 4QTDCh. 18 - Prob. 5QTDCh. 18 - Prob. 6QTDCh. 18 - Prob. 7QTDCh. 18 - Prob. 8QTDCh. 18 - Prob. 9QTDCh. 18 - Prob. 10QTD
Ch. 18 - Prob. 11QTDCh. 18 - Prob. 12QTDCh. 18 - Prob. 13QTDCh. 18 - Prob. 14QTDCh. 18 - Prob. 15QTDCh. 18 - Prob. 16QTDCh. 18 - Prob. 17QTDCh. 18 - Prob. 18QTDCh. 18 - Prob. 19QTDCh. 18 - Prob. 20QTDCh. 18 - Prob. 21QTDCh. 18 - Prob. 22QTDCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - Prob. 10PCh. 18 - Prob. 11PCh. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Prob. 14PCh. 18 - Prob. 15PCh. 18 - Prob. 16PCh. 18 - Prob. 17PCh. 18 - Prob. 18PCh. 18 - Prob. 19PCh. 18 - Prob. 20PCh. 18 - Prob. 21P
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