What forms of credit risk do small businesses face

Assignment Help Financial Management
Reference no: EM132317500

Question

(a) Burdekin Products ltd is considering relaxing its credit standards in order to increase sales and profits. The company's current annual credit sales are 24,500 units at a selling price of $35 each. Each sale makes as contribution to profit of $24.

As a result of the relaxed credit standards, it is expected that sales will increase by 8,000 units, bad debts will increase from 3% to 5% of sales, while the average collection period of accounts receivable will increase from 35 days to 60 days. The company's required rate of return on receivables is 15% before tax.

Required: Advise the directions whether the new policy should be adopted.

(b) What forms of credit risk do small businesses face? How can they mitigate these risk?

Reference no: EM132317500

Questions Cloud

Calculate the degree of financial leverage for alternatives : Newcap Ltd has an ordinary share capital of 400,000 shares fully paid to $1 and a 10% preference share capital of 100,000 shares fully paid to $1.
Describing the characteristics of VUCA world : Topic - VUCA world 2.0 and 'great big challenges'. In this topic, we will be doing two things: Describing the characteristics of VUCA world
Briefly discuss the accuracy and reliability of data : Briefly discuss the accuracy and reliability of data as an aspect of communication in the analysis of data for the client.
Determine the significant social and political factors : "Public Health Preparedness" Please respond to the following: From the first e-Activity, analyze the measures your state and local community have in place.
What forms of credit risk do small businesses face : Burdekin Products ltd is considering relaxing its credit standards in order to increase sales and profits. The company's current annual credit sales are 24,500.
What is the significance of the contribution margin : Create a cost-volume-profit analysis and identify the contribution margin. What is the significance of the contribution margin?
Compare the rational and political models of policy analysis : Compare and contrast the rational and political models of policy analysis. Debate the advantages of the model that you believe is most influential in.
Prepare a paper on greenhouse gas emissions : Prepare a paper on Greenhouse Gas Emissions - Greenhouse gas emission and prosperity
Prepare a investment discount amortization schedule : On January 1, 2010, the Wender Company acquired 12% bonds with a face value of $350,000 and classified as held to maturity.

Reviews

Write a Review

Financial Management Questions & Answers

  The current and futureconditionof the rapid urbanization

Analyze the SWOT (Strength, Weakness, Opportunity, Threat) of the Domino's Pizza Enterprises Limited with the trend of rapid urbanization.

  What is present value of the annuity

What is the present value of the following annuity? $4,659 every half year at the beginning of the period for the next 5 years

  Compute the market value of the firm

Compute the market value of the firm, according to the Miller-Modigliani method. Assume there are no nonoperating assets.

  Explain various stages and parties to collection of check

Identify and explain the various stages and parties to the collection of a check. Discuss the methods by which liability on an instrument may be terminated

  Using the corporate valuation model approach

Using the corporate valuation model approach, what should be the company's stock price today?

  Coupon bonds selling-common stock-shares outstanding

Given the following, calculate the WACC: Miramar Power Company tax rate = 40% Debt: 10,000 6 percent coupon bonds selling for 98 percent of par use a YTM of 6.5% Common Stock: 200,000 shares outstanding, selling for $60 per share. The beta is .9 Mark..

  An investment offers total return-inflation rate

An investment offers a total return of 13 percent over the coming year. Bill Bernanke thinks the total real return on this investment will be only 8.5 percent. What does Bill believe the inflation rate will be over the next year?

  What is the expected return for this stock next year

The risk-free rate is 4.1%. What is the expected return for this stock next year?

  Considering real estate investment

You are considering a real estate investment that will pay you $4,750 at the end of the month for the next 15 years.

  Raising funds with preferred stock

Norman Entertainment Corporation recently sold an issue of preferred stock at $45 per share. The dividend is $7.55, and the issuance costs are $4 per share. What is the cost to Norman Entertainment of raising funds with preferred stock?

  Target capital structure-what is its cost of common equity

Patton Paints Corporation has a target capital structure of 35.60% debt and 64.40%common equity, with no preferred stock. Its before-tax cost of debt is 7.80%, and its marginal tax rate is 30.00%. The current stock price is $22.00. The last dividend ..

  The capital budgeting decision model

The capital budgeting decision model that utilizes all the discounted cash flow of a project is the ________ model, which is one of the single most important models in finance.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd