Reference no: EM13846297
BUSI 320 Comprehensive Problems 2
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 $125,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 8% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales, and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes.
Compute the incremental income after taxes that would result from these projections:
Compute the incremental Return on Sales if these new credit customers are accepted:
If the receivable turnover ratio is expected to be 3 to 1 and no other asset buildup is needed to serve the new customers…
Compute the additional investment in Accounts Receivable
Compute the incremental Return on New Investment
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 centres 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.
If the company currently averages $50,000 in collections per day, how many dollars will this suggested cash management system free up?
If all freed up dollars would be used to pay down debt that has an interest rate of 6%, how much money could be saved each year in interest expense?
Do the numbers suggest that this new system should be implemented if its total annual cost is $5200? Explain.
|
Our normal actuarial notation
: To accumulate $18,000 at the end of 7n years, a deposit of $5,000 is made at the end of the first 3n years and another deposit of %7,200 is made at the end of 5n years. Find where v is taken from our normal actuarial notation and v > 0.
|
|
Why do business organizations conduct swot analysis
: Why do business organizations conduct SWOT Analysis? In what way and how is the SWOT Analysis of importance in the formulation of a business plan and/or marketing plan?
|
|
Long run average stock return-current t-bill return
: Use the information below to estimate the expected retur on the stock of Bieber Corporation. Long run average stock return-Current T-bill return
|
|
What would his monthly payments be at this rate
: David would like to buy a new boat. The boat costs $75,000. David can put 20% down and would like to finance the rest with a 10 year loan. The bank is offering a rate of 3.99% APR on that term. What would his monthly payments be at this rate?
|
|
Comprehensive problems-compute incremental return on sales
: Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Compute the incremental Return on Sales if these new credit customers are accepted: Would establish local collect..
|
|
What determines the price of financial instruments
: What determines the price of financial instruments? Which are riskier, capital market instruments or money market instruments? Why? What are the four major functions of the Federal Reserve System? What are the main responsibilities of the FOMC?
|
|
Perpetuity is constant stream of cash flows
: Perpetuity is a constant stream of cash flows without end. Why doesn’t it have an infinite value? Under what cases can we easily calculate its value?
|
|
In tax less world with no brokerage coasts
: In a tax less world with no brokerage coasts, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treatment than dividends to ordinary investors. Is it necessary fo..
|
|
Major stake of shares and is threatening to exert influence
: Suppose a firm finds itself as the target of a possible hostile takeover. An outsider investor has acquired a major stake of shares and is threatening to exert influence on the board.
|