1) Here is a forecast of sales by National Bromide for the first 4 months of 2017 (figures in thousands of dollars):
Month: 1 2 3 4
Cash sales 26 35 29 25
Credit sales 155 175 145 125
On average, 60% of credit sales are paid for in the current month, 20% in the next month, and the remainder in the month after that. What are the expected cash collections in months 3 and 4? (Enter your answers in whole dollars not in thousands of dollars.)
Expected Cash Collections
Month 3 _____
Month 4 _____
2) Company X sells on a 1/10, net 60, basis. Company Y buys goods with an invoice of $5,500.
a. How much can company Y deduct from the bill if it pays on day 10?
Discount _______
b. How many extra days of credit can company Y receive if it passes up the cash discount?
Number of Days: _________ days
c. What is the effective annual rate of interest if Y pays on the due date rather than day 10? (Use 365 days in a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Effective Annual Rate _____%
3) Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $170, and the cost per carton is $100. The unit sales will increase from 1,120 cartons to 1,180 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.
a. If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Change in total monthly profit _____
b. If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)
Change in total monthly profit _____
c. Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Change in total monthly profit _____