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Is it true that if a firm calculates its days sales outstanding, it has no need for an aging schedule?
Should the firm relax collection efforts if the opportunity cost of funds is 16 percent, the variable cost ratio is 75 percent, and taxes are 40 percent?
If the interest rate on funds invested in receivables is 18 percent, should the change in credit terms be made?
On March 1, Minnerly Motors obtained a business loan from a local bank. The loan is a $25,000 interest-only loan with a nominal rate of 11 percent.
Mary Jones recently obtained an equipment loan from a local bank. The loan is for $15,000 with a nominal interest rate of 11 percent.
What is the expected return on equity under each current asset level? (Assume a 40 percent effective federal-plus-state tax rate.)
The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store.
If a firm buys under terms of 3/15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit
Inventory conversion period; receivables collection period; payables deferral period; cash conversion cycle.
The Rentz Corporation is attempting to determine the optimal level of current assets for the coming year.
Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts.
The Thompson Corporation projects an increase in sales from $1.5 million to $2 million, but it needs an additional $300,000 of current assets.
What are the two principal reasons for holding cash? Can a firm estimate its target cash balance by summing the cash held to satisfy each of the two reasons?
What are the advantages of matching the maturities of assets and liabilities? What are the disadvantages?
Is it true that most firms are able to obtain some free trade credit and that additional trade credit is often available, but at a cost? Explain.
Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system.
What is the nominal and effective cost of trade credit under the credit terms of 3/15, net 30?
What would happen to average receivables if McDowell toughened up on its collection policy with the result.
Calculate the nominal annual cost of nonfree trade credit under each of the terms.
The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle.
The Zocco Corporation has an inventory conversion period of 75 days, a receivables collection period of 38 days, and a payables deferral period of 30 days.
Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500, and accounts receivable averaged $437,500.
Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day.