BUSI320 Corporate Finance Assignment Problem

Reference no: EM132381203

Assignment: BUSI320 Corporate Finance, Liberty University

You have been asked to assess the expected financial impact of each of the following proposals to improve the profitability of credit sales made by your company. Each proposal is independent of the other. Answer all questions. Showing your work may earn you partial credit.

Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 30% of its income after expenses in taxes.

1) Compute the incremental income after taxes that would result from these projections:

2) Compute the incremental Return on Sales if these new credit customers are accepted:

If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers...

3) Compute the additional investment in Accounts Receivable

4) Compute the incremental Return on New Investment

5) If your company requires a 20% Rate of Return on Investment for all proposals, do the numbers suggest that trade credit should be extended to these new customers? Explain.

Proposal #2 would establish local collection centers throughout the region to decrease the time it takes to convert credit payments that are mailed in by check to cash. It is estimated that establishing these collection centers would reduce the average collection time by 2 days.

1) If the company currently averages $60,000 in collections per day, how many dollars will this suggested cash management system free up?

2) If all freed up dollars would be used to pay down debt that has an interest rate of 5%, how much money could be saved each year in interest expense?

3) Do the numbers suggest that this new system should be implemented if its total annual cost is $5200? Explain.

Reference no: EM132381203

Questions Cloud

Describe the areas of knowledge will benefit you : "Course Wrap-Up" Please respond to the following: Indicate how these two (2) new areas of knowledge will benefit you in your current job or future career.

What shaped western culture in the given period : What shaped Western culture in the period 1300-1550 more: the Black Death's emphasis on the afterlife (the hereafter) or the Renaissance's emphasis on human.

Identify how a critical access hospital gets paid : What is the primary distinction between prospective payment system reimbursement and how critical access hospitals get paid? Be specific and identify.

Define why is profit-cost-volume important in planning : As a manager, why is Profit-cost-volume important in planning? Support your response with numerical example(s). As a manager, discuss how you would.

BUSI320 Corporate Finance Assignment Problem : BUSI320 Corporate Finance assignment help and solutions, Liberty University, assessment help - You have been asked to assess the expected financial impact.

Analyse and quantify the thermal (heat) management : Analyse and quantify the thermal (Heat) management needs of Electric Vehicle battery packs and apply appropriate thermal management techniques

What are the rules for recording the transactions in journal : What are the rules for recording the transactions in the journal? If the company purchases an equipment for cash, why should we credit cash and why should.

Calculate shannons gross profit percentage and return sale : Shannon Enterprises reports the following information on its year-end income statement. Calculate Shannon's gross profit percentage and return on sales ratio.

Calculate roe and ros and total asset turnover : Calculate ROE, ROS and Total Asset Turnover and solve for missing data. The response paper should be in APA format, double spaced, hand-written, numbered pages.

User Account

All Pages