Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 26, Problem 11P
The Mighty Power Tool Company has the following accounts on its books:
Customer Amount Owed (S) Age (days)
| ABC | 50,000 | 35 |
| DEF | 35,000 | 5 |
| GHI | 15,000 | 10 |
| KLM | 75,000 | 22 |
| NOP | 42,000 | 40 |
| QRS | 18,000 | 12 |
| TUV | 82,000 | 53 |
| WXY | 36,000 | 90 |
The firm extends credit on terms of 1/15, Net 30. Develop an aging schedule using 15-day increments through 60 days, and then indicate any accounts that have been outstanding for more than 60 days.
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Assume that you start with a balance of $3900 on your credit card. During the first month you charge $400 and during the second month you charge $650. Assume that your credit card charges a 29% APR and that each month you make only the minimum payment of 2.5% of the balance . Complete the following table. Round to nearest cent
Table
Month 1 Previous balance- Finance charge - Purchase- Payments- New balance
Month 2 Previous balance- Finance charge - Purchase- Payments- New balance
ABC has a major supplier that offers a credit term of 2/15, n/45. Cash not yet used for payments are generally kept in an account that earns ABC 2.5% per year. Use 360 days in a year.
REQUIRED:
Simple annual effective cost of paying on 45th day instead of the 15th day
Compounded annual effective cost of paying on 45th day instead of the 15th day
Should ABC pay on the 15th day or 45th day?
Commercial Supply Corp. bills its accounts on terms of 2/10 net 30. The firm's
accounts receivable include $200 000 that has been outstanding for ten or fewer
days, $126 000 outstanding for 11 to 30 days, $198 000 outstanding for 31 to 40
days, $92 000 outstanding for 41 to 50 days, $30 000 outstanding for 51 to 60
days, and $7 000 outstanding for more than 60 days. Is the ageing schedule for
Commercial Supply Corp. bottom heavy?
Select one:
O a. No, since 70% of the outstanding sales are on time and the percentage of
long-term outstanding payments is low.
O b. No, since the percentage of payments that are late are greater than the
percentage of payments that are on time.
O c. Yes, since the percentage of payments that are late are greater than the
percentage of payments that are on time.
O d. Cannot tell from the information given.
Chapter 26 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
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