Reference no: EM131021539
As the company accountant is currently on holiday you are required, by calculating net present value, internal rate of return and payback, to advise the company which option they should take.
You should also critically evaluate the other qualitative factors that might be taken into account in this decision.
Part B
BLC Ltd. has revenue of £500 million and sells all of its goods on credit to a variety of different wholesale customers. At the moment the company offers a standard credit period of 30 days. However, 70% of its customers (by revenue) take an average of 70 days to pay, while the other 30% of customers (by revenue) pay within 30 days. The company is considering offering a 2% discount for payment within 30 days and estimates that 80% of customers (by revenue) will take up this offer (including those that already pay within 30 days).
The Managing Director has asked the credit controller if the cost of this new policy would be worth offering. The company has a £80 million overdraft facility that it regularly uses to the full limit due to the lateness of payment and the cost of this overdraft facility is 15% per annum.
The credit controller also estimates that bad debt level of 2% of revenue would be halved to 1% of revenue as a result of this new policy.
Required
Calculate the approximate equivalent annual percentage cost of a discount of 2%, which reduces the time taken by credit customers to pay from 70 days to 30 days.
|
Reduce moral hazard within the traditional leave system
: Jan Czyrmer, the employee benefits manager at Ludlow Enterprises, wants to restructure the leave policy for the company. He is concerned that employees abuse the sick leave policy, taking sick leave time for personal reasons not related to illness. I..
|
|
Calculate the unemployment rate for this population
: Suppose that the government reclassifies people who are discouraged workers as unemployed workers at the same time that they also decide to count as unemployed any workers who are working part- time while preferring to work full-time. Calculate th..
|
|
First proposed budget
: The new finance head of a division that reports to you has just sent you his first proposed budget at the company. Walk through some of the things you are going to review and ask him questions about, especially since this is the first time you are se..
|
|
What is alice contribution measured in dollars
: Alice goes to the store and purchases $135 worth of groceries. Given these expenditures and holding everything else constant, what is Alice's contribution measured in dollars to the following given these purchases
|
|
Calculate the approximate equivalent annual percentage cost
: As the company accountant is currently on holiday you are required, by calculating net present value, internal rate of return and payback, to advise the company which option they should take. Calculate the approximate equivalent annual percentage cos..
|
|
Analyze and state the pros and cons of building new facility
: For San Antonio on the construction expenses. Recommendations to Management Prepare a report that will provide a final analysis of the financial data to your manager that will help the decision makers determine if they made the right decision (or not..
|
|
Considering leasing a new robotic milling control system
: Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years. The lease calls for 5 payments of $280,000 per year with the first payment occurring at lease inception. The system would cost $900,000 to buy and wou..
|
|
What is its cost of equity if the corporate tax rate
: A firm has a debt-to-equity ratio of 1.75. If it had no debt, its cost equity would be 9%. Its cost of debt is 7%. What is its cost of equity if the corporate tax rate is 50%?
|
|
What rate should it use to discount the projects cash flows
: Bluefield Corporation has 5 million shares of common stock outstanding, 750,000 shares of 7 percent $100 par preferred common stock outstanding, and 250,000 11% coupon bonds outstanding, par value 1,000 each, interest paid semiannually. What is the f..
|