Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 18, Problem 6CRCT
Use the following information to answer Questions 6–10: Last month, BlueSky Airline announced that it would stretch out its bill payments to 45 days from 30 days. The reason given was that the company wanted to “control costs and optimize cash flow.” The increased payables period will be in effect for all of the company’s 4,000 suppliers.
6. Operating and Cash Cycles [LO1] What impact did this change in payables policy have on BlueSky’s operating cycle? Its cash cycle?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
[EXCEL] Cash conversion cycle: Northern Manufacturing Company management found that during the last year it took an average of 47 days to pay its suppliers, whereas it took 63 days to collect its receivables. The company's days' sales in inventory was 49 days. What was Northern's cash conversion cycle? pleas use excel.
CASE 4
Bulawan Coin, Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period
will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is currently
selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is $4,200,000, variable
costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 15 percent.
Required:
1. How much was the selling price per unit?
2. How much was the variable cost per unit?
3. How much is the contribution margin per unit?
4. What is the variable cost rate?
5. How much was the marginal profit contribution?
6. How much was the cost of the marginal investment in accounts receivable?
7. How much was the cost of the marginal bad debts?
8. How much was the cost of marginal…
35
Rapterz Renewal Inc.. is considering a change in its cash-only sales policy. The new terms of sale would be net 30 days. You have been
provided with the following:
Current Credit Policy
Sales price per unit
Variable cost per unit
Unit sales per month
Required monthly return
Calculate the NPV of Switching. Show all calculations.
$165
132
1,260
1.5%
Proposed Credit
Policy
$168
132
Should the company switch policies? Explain your answer.
1,290
1.5%
Chapter 18 Solutions
Fundamentals of Corporate Finance
Ch. 18.1 - What is the difference between net working capital...Ch. 18.1 - Prob. 18.1BCQCh. 18.1 - List five potential sources of cash.Ch. 18.1 - Prob. 18.1DCQCh. 18.2 - Prob. 18.2ACQCh. 18.2 - Prob. 18.2BCQCh. 18.2 - Prob. 18.2CCQCh. 18.3 - What keeps the real world from being an ideal one...Ch. 18.3 - What considerations determine the optimal size of...Ch. 18.3 - Prob. 18.3CCQ
Ch. 18.4 - Prob. 18.4ACQCh. 18.4 - Prob. 18.4BCQCh. 18.5 - Prob. 18.5ACQCh. 18.5 - Describe two types of secured loans.Ch. 18.6 - Prob. 18.6ACQCh. 18.6 - In Table 18.6, what would happen to Fun Toys...Ch. 18 - Prob. 18.1CTFCh. 18 - A firm has an operating cycle of 64 days and a...Ch. 18 - Prob. 18.4CTFCh. 18 - Prob. 18.5CTFCh. 18 - Operating Cycle [LO1] What are some of the...Ch. 18 - Prob. 2CRCTCh. 18 - Prob. 3CRCTCh. 18 - Cost of Current Assets [LO2] Loftis Manufacturing,...Ch. 18 - Operating and Cash Cycles [LO1] Is it possible for...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Prob. 8CRCTCh. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Changes in the Cash Account [LO4] Indicate the...Ch. 18 - Prob. 2QPCh. 18 - Changes in the Operating Cycle [LO1] Indicate the...Ch. 18 - Prob. 4QPCh. 18 - Calculating Cash Collections [LO3] The Morning...Ch. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Calculating Payments [LO3] Sedman, Corp., has...Ch. 18 - Calculating Payments [LO3] The Torrey Pine...Ch. 18 - Calculating Cash Collections [LO3] The following...Ch. 18 - Calculating the Cash Budget [LO3] Here are some...Ch. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Calculating the Cash Budget [LO3] Wildcat, Inc.,...Ch. 18 - Prob. 16QPCh. 18 - Costs of Borrowing [LO3] In exchange for a 400...Ch. 18 - Prob. 18QPCh. 18 - Prob. 1MCh. 18 - Prob. 2MCh. 18 - Prob. 3M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 3. [EXCEL] Cash conversion cycle: Devon Automotive management estimates that it takes the company 62 days to collect cash from customers on finished goods from the day it receives raw materials, and it takes 65 days to pay its suppliers. What is the company's cash conversion cycle? Interpret your answer.arrow_forwardProblem 7-20 (Algo) Credit policy decision with changing variables [LO7-4] Slow Roll Drum Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $432,000 in additional credit sales, 9 percent are likely to be uncollectible. The company will also incur $17,500 in additional collection expense. Production and marketing costs represent 77 percent of sales. The firm is in a 35 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return. Assume the average collection period is 180 days. a. Compute the return on incremental investment. Note: Input your answer as a percent rounded to 2 decimal places. Use a 360-day year. Return on incremental investment %arrow_forwardSoru 17 Iris Company is considering lenghtening its credit period from 40 days to 45 days and believes, as a result of this change, its average collection period will increase from 40 days to 45 days. Bad debt expenses are also expected to increase from 1% to 2% of sales. The firm is currently selling 300,000 units but believes as a result of the change, sales will increase to 325,000 units. On 300,000 units, sales revenue is $4,200,000, variable costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 12%. Evaluate this proposed change and make a recommendation to the firm 4 3 AY B I E E % 8 5 B 8 B 21arrow_forward
- S Problem 4-28 (Algo) Percent-of-sales method [LO4-3] The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 35 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Sales Expenses Earnings before interest and taxes Interest Earnings before taxes Taxes Earnings after taxes Dividends Fixed assets Income Statement Cash Accounts receivable Inventory Current assets Total assets The firm Assets needs $ 220,000 171,200 $ 48,800 8,300 $ 40,500 16,300 $ 24,200 $ 7,260 Balance Sheet (in $ millions) $ 110,000 93,000 $8,000 Accounts payable 33,000 Accrued wages 69,000 Accrued taxes Liabilities and Stockholders' Equity…arrow_forwardRelaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current expenses for the collection department are 35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to 22,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to 1,625,000 per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 40%?arrow_forwardQuestion 3 Your company manufactures tables, normally 500 units per month you just got an order for 1,000 units for delivery next month, and are considering accepting it or not. "Capacity" issues under consideration would include do you have enough skilled employees? do you have enough machines? do you have enough time as a manager to oversee such a large order? all of the listed answers are correct True or false....... Financing through debt is more "risky" to a organization versus selling common shares True Falsearrow_forward
- A ezto.mheducation.com Saved Help Save & Exit Submit Chapter 20 - Problems 4 Codiac Corp. currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. The required return is 0.85% per month. Price per unit Cost per unit Unit sales per month Current Policy $ 220 $ 164 1,590 New Policy 225 169 $ 1,640 Calculate the NPV of the decision to change credit policies. (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV 4 of 5 Next < Prev Mc Graw Hillarrow_forwardThe manager of an automobile dealership is considering a new bonus plan designed to increase sales volume. Currently, the mean sales volume is 14 automobiles per month. The manager wants to conduct a research study to see whether the new bonus plan increases sales volume. To collect data on the plan, a sample of sales personnel will be allowed to sell under the new bonus plan for a one-month period. a. Develop the null and alternative hypotheses most appropriate for this situation. b. Comment on the conclusion when H0 cannot be rejected. c. Comment on the conclusion when H0 can be rejected.arrow_forwardSuppose the company has to revise its estimates because of a downturn in the economy. Unit sales for August, September, and October will be half (50%) of the original estimates. Revise the estimates in cells 1311 through 1313. After this is done, check your forecasted balance sheet. It should still balance! What effect will this new state of affairs have on net income and borrowing? Explain why these items changed.arrow_forward
- [EXCEL] Investment cash flows: Keswick Supply Company wants to set up a division that provides copy and fax services to businesses. Customers will be given 20 days to pay for such services. The annual revenue of the division is estimated to be $25,000. Assuming that the customers take the full 20 days to pay, what is the incremental cash flow associated with accounts receivable? Please use excel.arrow_forward7.4 q1 A chain of take-away pizza stores is considering introducing a new line of gluten-free pizzas. Net revenue from the new line of pizzas is expected to total $400,000 per year, but 20% of this net revenue is forecast to consist of people switching from the regular pizzas to the gluten-free pizzas. How would you describe this situation in terms of the NPV analysis upon which the situation will be based. a. There is a negative externality equal to $80,000 which should be included in the NPV analysis for the gluten-free pizza project. b. There is a positive externality equal to $80,000 which should be included in the NPV analysis for the gluten-free pizza project. c. There is a negative externality equal to $320,000 which should be included in the NPV analysis for the gluten-free pizza project. d. There is a positive externality equal to $320,000 which should be included in the NPV analysis for the gluten-free pizza project.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
The management of receivables Introduction - ACCA Financial Management (FM); Author: OpenTuition;https://www.youtube.com/watch?v=tLmePnbC3ZQ;License: Standard YouTube License, CC-BY