Chapter 3: 1BP_d (page 249)
Compute the cost of not taking the following cash discounts
d. 3/10, net 90
Short Answer
The cost of not taking the cash discount is 13.91%.
Chapter 3: 1BP_d (page 249)
Compute the cost of not taking the following cash discounts
d. 3/10, net 90
The cost of not taking the cash discount is 13.91%.
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Get started for freeHenderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.
b. What would be Henderson’s incremental after-tax return on investment?
In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.
b. How many orders will be placed during the year?
Explain how rapidly expanding sales can drain the cash resources of a firm.
Esquire Products Inc. expects the following monthly sales:
January | \(28,000 |
February | \)19,000 |
March | \(12,000 |
April | \)14,000 |
May | \(8,000 |
June | \)6,000 |
July | \(22,000 |
August | \)26,000 |
September | \(29,000 |
October | \)34,000 |
November | \(42,000 |
December | \)24,000 |
Total annual sales | \(264,000 |
Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.
c. Determine a cash payments schedule for January through December. The production costs (\)1 per unit produced) are paid for in the month in which they occur. Other cash payments (besides those for production costs) are $7,400 per month.
Lear Inc. has \(840,000 in current assets, \)370,000 of which are considered permanent current assets. In addition, the firm has \(640,000 invested in fixed assets.
a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear’s earnings before interest and taxes are \)240,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.
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