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81.
You are currently selling 72 units a month at a price of $210 a unit. Your
variable cost of each unit is $130. If you switch from your current cash sales
only policy to a net 30 policy you think your sales will increase to a total of
95 units per month. The monthly interest rate is 1.5 percent. What is the net
present value of this proposed switch using the accounts receivable
approach?
82.
Your current sales consist of 32 units per month at a price of $225 a unit.
You are weighing the pros and cons of switching to a net 30 credit policy
from your current cash only policy. If you decide to switch your credit policy
you also plan to increase the sales price to $240 a unit. If you make the
switch you do not expect your total monthly sales quantity to change but
you do expect a 3 percent default rate. The monthly interest rate is 1.5
percent. What is the net present value of the proposed credit policy switch?
83.
Your current sales consist of 45 units per month at a price of $390 a unit.
You are weighing the pros and cons of switching to a net 30 credit policy
from your current cash only policy. If you decide to switch your credit policy
you also plan to increase the sales price to $410 a unit. The monthly
interest rate is 1.4 percent. What is the break-even default rate of the
proposed switch?
84.
The Green Hornet sells earnings forecasts for international securities. Its
credit terms are 2/10, net 30. Based on experience, 55 percent of all
customers will take the discount. The firm sells 2,700 forecasts every month
at a price of $1,100 each. What is the firm's average balance sheet amount
in accounts receivable?
85.
A firm offers terms of 2/9, net 41. What effective annual interest rate does
the firm earn when a customer does not take the discount?
86.
Music City, Inc. has an average collection period of 62 days. Its average
daily investment in receivables is $50,000. What are the annual credit
sales?
87.
The Turn It Up Corporation sells on credit terms of net 30. Its accounts are,
on average, 6 days past due. Annual credit sales are $7 million. What is the
company's balance sheet amount in accounts receivable?
88.
Keep M Flying is a wholesaler that stocks engine components and test
equipment for the commercial aircraft industry. A new customer has placed
an order for eight high-bypass turbine engines, which increase fuel
economy. The variable cost is $1.7 million per unit, and the credit price is
$2.1 million each. Credit is extended for one period. Based on historical
experience, payment for about 1 out of every 240 such orders is never
collected. The required return is 3.2 percent per period. What is the NPV per
unit if this is a one-time order?
89.
Quest, Inc., is considering a change in its cash-only sales policy. The new
terms of sale would be one month. The required return is 1.6 percent per
month. Based on the following information, what is the NPV of the new
policy?
90.
Cohen Industrial Products uses 2,100 switch assemblies per week and then
reorders another 2,100. The relevant carrying cost per switch assembly is
$18, and the fixed order cost is $300. What is the EOQ?
91.
Roger's Store begins each week with 150 phasers in stock. This stock is
depleted each week and reordered. The carrying cost per phaser is $48 per
year and the fixed order cost is $70. What is the optimal number of orders
that should be placed each year?
92.
The Dilana Corporation is considering a change in its cash-only policy. The
new terms would be net one period. The required return is 2 percent per
period. What is the NPV of the new policy given the following information?
93.
The Cycle Shoppe has decided to offer credit to its customers during the
spring selling season. Sales are expected to be 330 bicycles. The average
cost to the shop of a bicycle is $300. The owner knows that only 93 percent
of the customers will be able to make their payments. To identify the
remaining 7 percent, she is considering subscribing to a credit agency. The
initial charge for this service is $540, with an additional charge of $6 per
individual report. What is the amount of the net savings from subscribing to
the credit agency?
Essay Questions
94.
Which do you feel is the more appropriate upper limit for the credit period
that a seller offers to a buyer: the buyer's operating cycle or the buyer's
inventory period?
95.
Assume all suppliers to a large retail chain offer credit terms of 2/10, net
30. The retail chain consistently takes the 2 percent discount and pays in 60
days. When pressed on the issue, the retail chain tells the suppliers they
can either accept the payments as they currently are or lose the business. Is
this ethical? How might this impact a small supplier versus a large supplier?
Explain.
96.
Why might firms forego discounts offered by their suppliers even though it
is costly to do so? What steps might a firm pursue to be able to take these
discounts?
97.
All else equal, firms with (1) excess capacity, (2) low variable costs, and (3)
repeat customers are more apt to offer liberal credit terms to their
customers than are other firms. Explain why this tendency exists.
