Determine the cost of the cash discounts to warren

Assignment Help Financial Management

Reference no: EM13724964

Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days. The firm expects 50 percent of it's customers to take the discount and its average collection period to decline to 30 days. The firm's required pre tax return (i.s. opportunity cost) on receivables investment is 16 percent. Determine the cost of the cash discounts to Warren.

Reference no: EM13724964

Questions Cloud

What is the present value per year : What is the present value of $1,100 per year, at a discount rate of 10 percent if the first payment is received 6 years from now and the last payment is received 30 years from now?

Explain the women rights movement : Opponents to the women's rights movement - among them, Phyllis Schlafly, founder of STOP-ERA - managed to block passage of the Equal Rights Amendment and other feminist leaps.

Goal is to maximize his interest income : Walter White has $5,600 that he wants to use to open a savings account. There are five banks located in his area. The rates paid by banks A through E, respectively, are given below. Which bank should White select if his goal is to maximize his intere..

What is the effective annual rate : What is the effective annual rate of 5.25 percent compounded continuously?

Determine the cost of the cash discounts to warren : Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of receivables, Warren is considering offering a cash disc..

What is the length of the annuity time period : D’Angelo Barksdale is considering an annuity which costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.50 percent. What is the length of the annuity time period?

Assume the risk free inflation adjusted interest rate : You have a contract that entitles you to receive $1 million 20 years from now. But can't wait and want your money now. You want to sell your contract. What is a fair price for it? Assume the risk free, inflation adjusted interest rate is 3% per year,..

Write an essay on globalization course : it is an ESSAY for Globalization course. I want you to write 6 paragraphs, in 2 pages. The first and last paragraphs should introduce and summarize your analysis.

What is the internal rate of return on this new plant : Microwave Oven Programming, Inc is considering the construction of a new plant. The plant will have an initial cash outlay of $7 million (= -$7 million), and will produce cash flows of $2.9 million at the end of year 1, $5 million at the end of year ..

User Account

All Pages