User Account

All Pages

case study.., Financial Management

Assignment Help:

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct
decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a
variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.
In the northwestern United States, many of the Perluence products are marketed by a wholly-owned
subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San
Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.
About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at
Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600
accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net
30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt
losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,
a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth
and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and
had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence
International under the same terms and conditions as Perluence used when it sold to independent
customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary
operated independently and could adjust price levels to meet its own marketing strategies. The Perluence''s
cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca
Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that
these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket
expenses that were not considered in calculating the 17 per cent markup on its items. For example, the
contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would
be paid whether or not the receivable was collected. James would, of course, be willing to assist in
collecting any accounts that he had sold. In addition to the sales commission, the company would incur
variable costs as a result of handling the merchandise for the new account. As a general guideline,
warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential
profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that
Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these
sales since the average markup was calculated on the basis of the customer taking the discount. If Neck
Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the
receivable for the additional period of time. In addition to the potential profit from the account, Gupta was
concerned about his company''s exposure. He knew that weak customers could become bad debts at any
time and therefore, required a vigorous collection effort whenever their accounts were overdue. His
department probably spent three times as much money and effort managing a marginal account as
compared to a strong account. He also figured that overdue and uncollected funds had to be financed by
Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to
Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for
Booth Plastics.
Question:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth
Plastics and give your views to increase the profit.
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of
credit limit that electronics give to Booth Plastics

Related Discussions:- case study..

What do you mean by accrued expenses, Q. What do you mean by Accrued Expens...

Q. What do you mean by Accrued Expenses? Accrued expenses are the expenses which have been incurred but not yet due and hence not yet paid also. These simply represent a liabil

Determine a legal factors which could restrict a corporation, Are there any...

Are there any legal factors which could restrict a corporation in its effort to pay cash dividends to common stockholders?  Explain. A firm might be legally restricted as to the

Calculation of before-tax return on capital, Calculation of before-tax retu...

Calculation of before-tax return on capital employed Total net before-tax cash flow = 122 + 143 + 187 + 78 = $530000 Total depreciation = 250000 - 5000 = $245000 Average

Discuss the idea of efficient market hypothesis as it appear, how to do suc...

how to do such an assignment?

Weighted average cost of capital, Q. Weighted Average cost of Capital? ...

Q. Weighted Average cost of Capital? When the company capital structure is made from equity share capital , debenture and Preference share capital , then we calculated the comb

How does continuous compounding benefit an investor, How does continuous co...

How does continuous compounding benefit an investor? The effect of enhancing the number of compounding periods per year is to increase the future value of the investment.  The

Calculate actual returns using the dividend discount model, You've just won...

You've just won a huge $100 million lottery.  You've decided to invest your winnings in the following way:  $30 million in real estate,  $30 million in  corporate bonds and $40 mil

What are the motives of holding cash, Q. What are the Motives of Holding Ca...

Q. What are the Motives of Holding Cash? Motives of Holding Cash: - In every business assets are kept for the reason that they generate profit. But cash is an asset which doesn

Describe the types of hazards that is found in z department, Z works for HS...

Z works for HS Company and has been asked to undertake an assessment of any health and safety issues that might be potential hazards in the department which she manages. Z's respon

Define the pros and cons of commercial paper, What are the pros and cons of...

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term fin

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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