Determine the marginal profitability of additional sales

Assignment Help Financial Management

Reference no: EM13926951

Plant Nutrients, Inc. (PNI) sells fertilizers and pesticides to various retail hardware and nursery stores on terms of "2/10, net 30." The company currently does not grant credit to retailers with a 3 (fair) or 4 (limited) Dun & Bradstreet Composite Credit Appraisal. An estimated $5,475,000 in additional sales per year could be generated if PNI extended credit to retailers in the "fair" category. The estimated average collection period for these customers is 75 days, and the expected bad-debt loss ratio is 5 percent. The company also estimates that an additional inventory investment of $800,000 is required for the anticipated sales increase. Approximately 10 percent of these customers are expected to take the cash discount. PNI's variable cost ratio is 0.75, and its required pretax rate of return on investments in current assets is 18 percent. Determine the following:

a. Marginal profitability of additional sales

b. Cost of additional investment in receivables

c. Additional bad-debt loss

d. Cost of additional investment in inventory

e. Additional cash discounts

f. Net change in pretax profits.

Reference no: EM13926951

Questions Cloud

No stable matching has maximum size : Let A be a finite set with subsets A1, ..., An, and let d1, Find a bipartite graph with a set of preferences such that no matching of maximum size is stable and no stable matching has maximum size.

Innovative solutions for growing and protecting wealth : Liability financial services company that provides individuals and institutions with innovative solutions for growing and protecting wealth. The Company's mission, vision and strategy combined with its values, principles and polices are the corner..

Does the information media have social responsibility : Write a 700-to 1,050 word essay in which you discuss how the information and news media have affected American culture. Include answers to the following questions:

Describe the elements of the marketing mix : describe the elements of the marketing mix (product, place, price, and promotion).

Determine the marginal profitability of additional sales : Determine the Marginal profitability of additional sales, Cost of additional investment in receivables, Additional bad-debt loss and Cost of additional investment in inventory.

Public policy makers developed a substantial body of law : Hospitals are engaged in intense competition to fill maternity beds. What type of advertising would hospitals most likely use to advertise their new amenities like hot tubs in every room, filet mignon or lobster on the menu, and afternoon teas for th..

Introduction to systems biology : There is a lot of viable information in this book. The most important thing to consider in this book is the makeup of an ecosystem. It all starts with water and how salinity levels in the water affect the type of organisms that can live there.

Greater yellowstone ecosystem : Jim Fowler once said, "Our challenge for the future is that we realize we are very much a part of the earth's ecosystem, and we must learn to respect and live according to the basic biological laws of nature.

Impact of illicit drug use on our society : After you've spent some time reviewing the data in the ONDCP, it's Data Supplement, ADAM and DAWN reports, discuss one or more of the findings that you found most interesting and explain.

User Account

All Pages