Evaluate this decision and make recommendation to the firm

Assignment Help Financial Management

Reference no: EM132071459

A firm is contemplating shortening its credit period from 40 to 30 days and believes that as a result of this change, its average collection period will decline from 45 to 36 days. Bad debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed changes, sales will decline to 10,000 units. The sale price per unit of $56, and the variable cost per unit is $45. The firm has a required return on equal-risk investment of 25%. Evaluate this decision and make a recommendation to the firm. (Note: Assume a 365-day year)

Reference no: EM132071459

Questions Cloud

Client besides audit of financial statements : What other types of service could you provide a client besides an audit of financial statements? Describe service and include how it would differ from audit.

Accounts receivable collateral held by springer products : Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products.

Determine the current yield and the yield-to-maturity : Assume that the bonds are selling for $1,352. Determine the current yield and the yield-to-maturity. Explain what these terms mean.

The firm decides not to change capital structure structure : Assume the firm decides not to change its capital structure structure, What percentage of the current firm’s equity should you own to achieve your objective?

Evaluate this decision and make recommendation to the firm : The firm has a required return on equal-risk investment of 25%. Evaluate this decision and make a recommendation to the firm.

Homemade leverage and WACC : Homemade leverage and WACC: ABC Co. and XYZ Co. are identical firms in all real respects (e.g. organizational, contractual, technological).

Payment you will have to make in one year will be : If you borrow $1,000 today to be paid back one year from today at 5% interest, the payment you will have to make in one year will be

Explain the shape of each of the three curves : Explain the shape of each of the three curves you obtain in part b.

What is the goal of financial management : What is an initial public offering (IPO)? What is the goal of financial management? Why do you think this is important?

User Account

All Pages