Breeze Corp. is planning to change its credit terms from 4/10, n/30 to 5/15, n/35. Currently, 50% of customers take the 4% discount. Under the new term, 5/15, n/35, discount customers are expected to rise to 60%. Under both of the terms, 50% of the customers who do not take the discount are expected to pay on due date, while the remainder will pay 10 days after. What is the increase in days sales outstanding from the old credit term to the proposed credit term? (Use 360 days) a. 25 days b. 2.5 days c. 1.5 days d. 4.25 days
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Breeze Corp. is planning to change its credit terms from 4/10, n/30 to 5/15, n/35. Currently, 50% of customers take the 4% discount. Under the new term, 5/15, n/35, discount customers are expected to rise to 60%. Under both of the terms, 50% of the customers who do not take the discount are expected to pay on due date, while the remainder will pay 10 days after. What is the increase in days sales outstanding from the old credit term to the proposed credit term? (Use 360 days)
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- Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…DBA Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40% of Sonata Company‘s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. DBA’s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9 %, and the firm’s income tax rate is 40%. Required: What is the days sales outstanding (DSO) before the change of credit policy? What is the days sales outstanding (DSO) after the change of credit policy? How much is the…Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…
- Sonata Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40 percent of Sonata Company’s customers take the 2 percent discount. Under the new term, discount customers are expected to rise to 50 percent. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2 percent level. However, the more generous cash discount terms are expected to increase sales from 2 million to 2.6 million per year. Santa Company’s variable cost ratio is 75 percent, the interest rate on funds invested in accounts receivable is 9 per-cent, and the firm’s income tax rate is 40 percent. (Adapted Comprehensive Reviewer in MAS 2010 Edition, Apolinario D. Bobadilla) Determine the following: The days sales…Peanut Inc. is evaluating whether to change its credit terms from 2/10 net 30 to 3/10 net 30. At present, 50% of Peanut's sales are paid at day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on day 30 whereas the remainder will pay 15 days late (no bad debts exist). But as a result of the higher cash discount offered with the new terms, sales are expected to increase from 757,000 to 801,000 per year. Peanut's variable cost ratio is 75% and its cost of funds is 8.7%. All production costs are paid on the day of the sale. Should the change be made?XYZ is evaluating whether to loosen its credit terms from 2/10, net 30 to 3/10, net 30. At present, 50 percent of XYZ'S sales are paid on Day 10, whereas, under the new terms, 60% of sales will be paid on Day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on Day 30, whereas the remainder will pay 15 days late (no bad debts exist). But, as a result of the higher cash discount offered with the new terms, sales are expected to increase from $360,000 to $396,000 per year. XYZ'S variable costratio is 80% and its cost of funds is 9%. All production costs are paid on the day of the sale. Should XYZ change its credit terms? Show your computations and prove your answer.
- Power Inc. is considering shifting its credit terms from 3/15, n/30 to 4/10, n/30 in order to speed up collections. Currently, 30% of Power Inc.’s customers take the 3% discount, 35% pays on time; the rest on the 35th day. Under the new policy, 40% take the discount, half of the remaining customers pays on time while the rest pays 5 days after. More generous cash discount terms are expected to increase sales from P2,000,000 to P2,500,000 per year. Power Inc.’ variable cost ratio is 60%, the interest rate on funds invested in accounts receivable is 3%, and the firm’s income tax rate is 40%. Use 360 days/year.What is the Days Sales Outstanding before the change in credit policy?How much is the accounts receivable balance under the old credit policy?What is the incremental investment in accounts receivable? How much is the incremental sales? What is the incremental contribution margin?Assume the credit terms offered to your firm by your suppliers are 2/20, net 40. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 40. (Hint: Use a 365-day year.)Kumi Ltd permits its customers to pay with a credit card or to receive a percentage discount ? for paying cash. For credit card purchases, the company receives 97% of the purchase price one-half month later. Determine the value of ? that would make the two payment methods equivalent if the company’s annual rate of return is 14%.
- ABC Corp. has net credit sales of P1,440,000 yearly with credit terms of n/30, which is also the average collection period. BECK does not offer discounts for early payment; thus, customers take the full 30 days to pay. (Use 360 days/year) If BECK offered 2% discount for payment in 10 days and every customer took advantage of the new terms, what would the new averagereceivable balance be? Continuing from the situation in (1), if BECK reduces its bank loans which cost 10%, by the cash generated from reduced receivables, what will be the net gain/loss to the firm?A retailer owes a wholesaler $900,000 due in 45 days. If the payment is 15 days late, there is a 1% penalty charge. Since the bill isn't due immediately, the retailer can invest the $900,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 7% per year simple interest or a 60-day certificate earning 8% per year simple interest. How much interest would the retailer earn? Use 360 days in a year. (Round your answers to the nearest cent.) 45-day certificate $ 60-day certificate $ If the retailer opts for the 60-day certificate of deposit, he will be late on his payment to the wholesaler. How much will the penalty be if he is late on his payment to the wholesaler? $ How much will the retailer make in total if he opts for the 60-day certificate and has to pay the penalty out of the proceeds of the interest earned on the CD? (Round your answer to the nearest cent.) $ Is it better to take the 45-day…Jazz Auto Supply is not satisfied with its present credit policy. A proposal under consideration is to change the credit terms from 1/10, net 30 to 2/10, net 30. The firm's current average collection period is 42 days but it is expected to decline to 38 days. The percentage of credit customers who take discount is expected to increase from 45% to 60% under the new policy. Credit sales are anticipated to remain P400,000 with contribution margin of 25%. The bad debt losses are forecasted to decrease from 3% of credit sales to 2.5%. The firm's opportunity cost for investing in additional receivables is 18%. Should Jazz adopt this change policy?