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Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000.

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award;1.00 point;Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer;season. Units sold are anticipated as follows;March;April;May;June;4,150;8,150;13,300;11,300;36,900;If seasonal production is used, it is assumed that inventory will directly match sales for each month and;there will be no inventory buildup.;The production manager thinks the preceding assumption is too optimistic and decides to go with level;production to avoid being out of merchandise. He will produce the 36,900 units over four months at a level;of 9,225 per month.;a. What is the ending inventory at the end of each month? Compare the unit sales to the units produced;and keep a running total. (Leave no cells blank - be certain to enter "0" wherever required.);Ending;Inventory;March;April;May;June;units;units;units;units;b. If the inventory costs $12 per unit and will be financed at the bank at a cost of 12 percent, what is the;monthly financing cost and the total for the four months? (Use 1.0 percent as the monthly rate.) (Leave;no cells blank - be certain to enter "0" wherever required.);March;April;May;June;Total financing cost;Inventory;Financing Cost;$;$;View Hint #1;Worksheet;2.;Difficulty: Basic;Learning Objective: 06-01 Working capital management;involves financing and controlling the current assets of the;firm.;award;1.00 point;Biochemical Corp. requires $520,000 in financing over the next three years. The firm can borrow the funds;for three years at 10.90 percent interest per year. The CEO decides to do a forecast and predicts that if she;utilizes short-term financing instead, she will pay 7.75 percent interest in the first year, 12.50 percent;interest in the second year, and 8.75 percent interest in the third year. Assume interest is paid in full at the;end of each year.;a. Determine the total interest cost under each plan.;Long-term fixed-rate;Short-term variable-rate;Interest Cost;$;$;b. Which plan is less costly?;Long-term fixed-rate plan;http://ezto.mheducation.com/hm.tpx;Page 1 of 13;Assignment Print View;10/31/14, 4:11 PM;Short-term variable-rate plan;View Hint #1;Worksheet;3.;Difficulty: Basic;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;1.00 point;Sauer Food Company has decided to buy a new computer system with an expected life of three years. The;cost is $430,000. The company can borrow $430,000 for three years at 13 percent annual interest or for;one year at 11 percent annual interest. Assume interest is paid in full at the end of each year.;a. How much would Sauer Food Company save in interest over the three-year life of the computer system;if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 11 percent;rate? Compare this to the 13 percent three-year loan.;Interest;11 percent loan;13 percent loan;Interest savings;$;$;$;b. What if interest rates on the 11 percent loan go up to 16 percent in year 2 and 19 percent in year 3?;What would be the total interest cost compared to the 13 percent, three-year loan?;Interest;$;$;$;Fixed-rate 13% loan;Variable-rate loan;Additional interest cost;View Hint #1;Worksheet;4.;Difficulty: Intermediate;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;2.00 points;Assume that Hogan Surgical Instruments Co. has $3,300,000 in assets. If it goes with a low-liquidity plan for;the assets, it can earn a return of 16 percent, but with a high-liquidity plan, the return will be 12 percent. If;the firm goes with a short-term financing plan, the financing costs on the $3,300,000 will be 8 percent, and;with a long-term financing plan, the financing costs on the $3,300,000 will be 10 percent.;a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.;Anticipated return;$;b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.;Anticipated return;$;c. Compute the anticipated return after financing costs with the two moderate approaches to the assetfinancing mix.;Low liquidity;High liquidity;Anticipated Return;$;$;View Hint #1;Worksheet;5.;Difficulty: Intermediate;Learning Objective: 06-05 Risk, as well as profitability;determines the financing plan for current assets.;award;3.00 points;Assume that Atlas Sporting Goods Inc. has $1,050,000 in assets. If it goes with a low-liquidity plan for the;assets, it can earn a return of 15 percent, but with a high-liquidity plan the return will be 12 percent. If the;firm goes with a short-term financing plan, the financing costs on the $1,050,000 will be 9 percent, and with;a long-term financing plan, the financing costs on the $1,050,000 will be 10 percent.;a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.;http://ezto.mheducation.com/hm.tpx;Page 2 of 13;Assignment Print View;10/31/14, 4:11 PM;Anticipated return;$;b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.;Anticipated return;$;c. Compute the anticipated return after financing costs with the two moderate approaches to the assetfinancing mix.;Low liquidity;High liquidity;d.;Anticipated Return;$;$;If the firm used the most aggressive asset-financing mix described in part a and had the anticipated;return you computed for part a, what would earnings per share be if the tax rate on the anticipated;return was 30 percent and there were 20,000 shares outstanding? (Round your answer to 2 decimal;places.);Earnings per share;$;e-1. Now assume the most conservative asset-financing mix described in part b will be utilized. The tax;rate will be 30 percent. Also assume there will only be 5,000 shares outstanding. What will earnings;per share be? (Round your answer to 2 decimal places.);Earnings per share;$;e-2. Would the conservative mix have higher or lower earnings per share than the aggressive mix?;Higher;Lower;View Hint #1;Worksheet;6.;Difficulty: Intermediate;Learning Objective: 06-05 Risk, as well as profitability;determines the financing plan for current assets.;award;2.00 points;Colter Steel has $5,350,000 in assets.;Temporary current assets;Permanent current assets;Fixed assets;Total assets;$ 2,700,000;1,585,000;1,065,000;$ 5,350,000;Short-term rates are 11 percent. Long-term rates are 16 percent. Earnings before interest and taxes are;$1,130,000. The tax rate is 30 percent.;If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true;of short-term financing, what will earnings after taxes be?;Earnings after taxes;$;View Hint #1;Worksheet;7.;Difficulty: Intermediate;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;2.00 points;Colter Steel has $5,600,000 in assets.;Temporary current assets;Permanent current assets;Fixed assets;Total assets;$ 3,200,000;1,610,000;790,000;$ 5,600,000;Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and;long-term rates 3 percentage points lower than short-term rates. Earnings before interest and taxes are;$1,180,000. The tax rate is 20 percent.;If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true;of short-term financing, what will earnings after taxes be?;http://ezto.mheducation.com/hm.tpx;Page 3 of 13;Assignment Print View;Earnings after taxes;10/31/14, 4:11 PM;$;View Hint #1;Worksheet;8.;Difficulty: Intermediate;Learning Objective: 06-04 Long-term financing is usually;more expensive than short-term financing based on the;theory of the term structure of interest rates.;award;2.00 points;Guardian Inc. is trying to develop an asset-financing plan. The firm has $330,000 in temporary current;assets and $230,000 in permanent current assets. Guardian also has $430,000 in fixed assets. Assume a;tax rate of 40 percent. (Do not round intermediate calculations. Round your answers to the nearest;whole number.);a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 80;percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25;percent of assets financed by long-term sources. The current interest rate is 12 percent on long-term;funds and 7 percent on short-term financing. Compute the annual interest payments under each plan.;Conservative;Aggressive;Annual Interest;$;$;b. Given that Guardians earnings before interest and taxes are $210,000, calculate earnings after taxes;for each of your alternatives.;Conservative;Aggressive;Earnings;After Taxes;$;$;c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies;be if the short-term and long-term interest rates were reversed?;Total interest;Earnings after taxes;Conservative;$;$;Aggressive;$;$;View Hint #1;Worksheet;9.;Difficulty: Intermediate;Learning Objective: 06-05 Risk, as well as profitability;determines the financing plan for current assets.;award;2.00 points;Lear Inc. has $860,000 in current assets, $380,000 of which are considered permanent current assets. In;addition, the firm has $660,000 invested in fixed assets.;a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing;costing 10 percent. The balance will be financed with short-term financing, which currently costs 5;percent. Lears earnings before interest and taxes are $260,000. Determine Lears earnings after taxes;under this financing plan. The tax rate is 30 percent.;Earnings after taxes;$;b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of;its temporary current assets with long-term financing and the balance with short-term financing. The;same interest rates apply as in part a. Earnings before interest and taxes will be $260,000. What will be;Lears earnings after taxes? The tax rate is 30 percent.;Earnings after taxes;$;View Hint #1;Worksheet;10.;Difficulty: Intermediate;Learning Objective: 06-05 Risk, as well as profitability;determines the financing plan for current assets.;award;2.00 points;http://ezto.mheducation.com/hm.tpx;Page 4 of 13;Assignment Print View;10/31/14, 4:11 PM;Carmens Beauty Salon has estimated monthly financing requirements for the next six months as follows;January;February;March;$ 10,200;4,200;5,200;April;May;June;$ 10,200;11,200;6,200;Short-term financing will be utilized for the next six months. Projected annual interest rates are;January;February;March;6.0 %;7.0 %;10.0 %;April;May;June;13.0 %;12.0 %;12.0 %;a. Compute total dollar interest payments for the six months. (Round your monthly interest rate to 2;decimal places when expressed as a percent. Round your interest payments to the nearest;whole cent.);Total dollar interest payments;$;b-1. Compute the total dollar interest payments if long-term financing at 12 percent had been utilized;throughout the six months? (Round your monthly interest rate to 2 decimal places when;expressed as a percent. Round your interest payments to the nearest whole cent.);Total dollar interest payments;$;b-2. If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar;interest payments be larger or smaller than with the short-term financing plan?;Larger;Smaller;View Hint #1;Worksheet;11.;Difficulty: Challenge;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;1.00 point;Carmens Beauty Salon has estimated monthly financing requirements for the next six months as follows;January $ 9,900;February;3,900;March;4,900;April;May;June;$ 9,900;10,900;5,900;Short-term financing will be utilized for the next six months. Projected annual interest rates are;January;February;March;8% April;9;May;12;June;15%;12;12;What long-term interest rate would represent a break-even point between using short-term financing and;long-term financing? (Round the monthly interest rate to 2 decimal places when expressed as a;percent (e.g.,.67%) and use this rounded rate to compute the monthly interest. Round the monthly;interest to the nearest whole cent. Use the rounded monthly interest amounts to compute the total;interest for the 6-month period. Input your answer as a percent rounded to 2 decimal places.);Interest rate;%;View Hint #1;Worksheet;12.;Difficulty: Challenge;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;5.00 points;Bombs Away Video Games Corporation has forecasted the following monthly sales;January;February;March;$ 112,000;105,000;37,000;http://ezto.mheducation.com/hm.tpx;July;August;September;$;57,000;57,000;67,000;Page 5 of 13;Assignment Print View;10/31/14, 4:11 PM;April;May;June;37,000;October;97,000;32,000 November;47,000 December;Total annual sales = $900,000;117,000;135,000;Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and;costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to;annual sales (in units) divided by 12.;Of each month's sales, 30 percent are for cash and 70 percent are on account. All accounts receivable;are collected in the month after the sale is made.;a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is;37,000 units.;Bombs Away Video Games Corporation;Production and inventory schedule in units;January;February;March;April;May;June;July;August;September;October;November;December;Beginning;inventory;+;37,000;Production;Sales;Ending;inventory;=;b. Prepare a monthly schedule of cash receipts. Sales in December before the planning year are;$100,000.;January;$;Bombs Away Video Games Corporation;Cash Receipts Schedule;February;March;April;$;$;$;$;$;Cash receipts;Cash sales;Prior month's credit sales;$;$;$;$;$;$;Total cash receipts;$;$;$;$;$;$;Sales;May;June;Sales;$;Bombs Away Video Games Corporation;Cash Receipts Schedule;August;September;October;$;$;$;Cash receipts;Cash sales;Prior month's credit sales;$;$;$;$;$;$;Total cash receipts;$;$;$;$;$;$;July;November;$;December;$;c. Prepare a cash payments schedule for January through December. The production costs of $2 per unit;are paid for in the month in which they occur. Other cash payments, besides those for production costs;are $57,000 per month.;Production cost;Other cash payments;Total cash payments;http://ezto.mheducation.com/hm.tpx;January;$;Bombs Away Video Games Corporation;Cash Payments Schedule;Constant production;February;March;April;$;$;$;$;$;$;$;$;$;$;$;May;June;Page 6 of 13;Assignment Print View;10/31/14, 4:11 PM;Production cost;Other cash payments;$;Bombs Away Video Games Corporation;Cash Payments Schedule;Constant production;August;September;October;$;$;$;Total cash payments;$;$;July;$;November;$;$;$;December;$;$;d. Prepare a monthly cash budget for January through December using the cash receipts schedule from;part b and the cash payments schedule from part c. The beginning cash balance is $5,000, which is also;the minimum desired. (Leave no cells blank - be certain to enter "0" wherever required. Negative;amounts should be indicated by a minus sign.);January;$;Bombs Away Video Games Corporation;Cash Budget;February;March;April;$;$;$;$;$;$;$;$;$;$;$;Ending cash balance;$;$;$;$;$;$;Cumulative loan balance;$;$;$;$;$;$;Beginning cash;Net cash flow;Cumulative cash balance;May;June;Monthly loan or (repayment);Beginning cash;Net cash flow;$;Bombs Away Video Games Corporation;Cash Budget;August;September;$;$;Cumulative cash balance;Monthly loan or (repayment);$;$;$;$;$;$;Ending cash balance;$;$;$;$;$;$;Cumulative loan balance;$;$;$;$;$;$;July;October;$;November;$;December;$;View Hint #1;Worksheet;13.;Difficulty: Challenge;Learning Objective: 06-03 The financing of an asset should;be tied to how long the asset is likely to be on the balance;sheet.;award;2.00 points;Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon;has determined that through the establishment of local collection centers around the country, she can speed;up the collection of payments by two days. Furthermore, the cash management department of her bank has;indicated to her that she can defer her payments on her accounts by one-half day without affecting;suppliers. The bank has a remote disbursement center in Florida.;a. If Neon Light Company has $2.55 million per day in collections and $1.11 million per day in;disbursements, how many dollars will the cash management system free up? (Enter your answer in;dollars not in millions (e.g., $1,234,567).);Freed-up funds;$;b. If Neon Light Company can earn 7 percent per annum on freed-up funds, how much will the income be?;(Enter your answer in dollars not in millions (e.g., $1,234,567).);Interest on freed-up cash;$;c. If the total cost of the new system is $430,000, should it be implemented?;Yes;No;View Hint #1;Learning Objective: 07-02 Cash management involves;http://ezto.mheducation.com/hm.tpx;Page 7 of 13;Assignment Print View;10/31/14, 4:11 PM;Worksheet;14.;Difficulty: Basic;control over the receipt and payment of cash so as to;minimize nonearning cash balances.;award;1.00 point;Mervyns Fine Fashions has an average collection period of 35 days. The accounts receivable balance is;$70,000.;What is the value of its annual credit sales? (Use a 360-day year.);Annual credit sales;$;View Hint #1;Worksheet;15.;Difficulty: Basic;award;2.00 points;Route Canal Shipping Company has the following schedule for aging of accounts receivable;(1);Month of;Sales;April;March;February;January;Age of Receivables;April 30, 2013;(2);(3);Age of;Account Amounts;030 $ 110,110;3160;62,920;6190;94,380;91120;47,190;Total receivables;$314,600;(4);Percent of;Amount Due;100%;a. Calculate the percentage of amount due for each month.;Month of Sales;April;March;February;Percent of Amount Due;%;%;%;January;Total receivables;%;100 %;b. If the firm had $1,452,000 in credit sales over the four-month period, compute the average collection;period. Average daily sales should be based on a 120-day period.;Average collection period;days;c. If the firm likes to see its bills collected in 31 days, should it be satisfied with the average collection;period?;Yes;No;d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should;the company be satisfied?;Yes;No;View Hint #1;Worksheet;16.;Difficulty: Intermediate;award;2.00 points;Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its;retail stores. Fisk anticipates sales of 37,500 units per year, an ordering cost of $12 per order, and carrying;costs of $1.60 per unit.;a. What is the economic ordering quantity?;http://ezto.mheducation.com/hm.tpx;Page 8 of 13;Assignment Print View;10/31/14, 4:11 PM;Economic ordering quantity;units;b. How many orders will be placed during the year?;Number of orders;orders;c. What will the average inventory be?;Average inventory;units;d. What is the total cost of ordering and carrying inventory?;Total cost;$;View Hint #1;Worksheet;17.;Difficulty: Intermediate;Learning Objective: 07-05 Inventory management requires;determining the level of inventory necessary to enhance;sales and profitability.;award;2.00 points;Diagnostic Supplies has expected sales of 162,000 units per year, carrying costs of $2 per unit, and an;ordering cost of $5 per order.;a. What is the economic ordering quantity?;Economic ordering quantity;units;b-1. What is the average inventory?;Average inventory;units;b-2. What is the total carrying cost?;Total carrying cost;$;Assume an additional 100 units of inventory will be required as safety stock.;c-1. What will the new average inventory be?;Average inventory;units;c-2. What will the new total carrying cost be?;Total carrying cost;$;View Hint #1;Worksheet;18.;Difficulty: Intermediate;Learning Objective: 07-05 Inventory management requires;determining the level of inventory necessary to enhance;sales and profitability.;award;2.00 points;Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur;under level production, and aftertax costs would decline by $44,800, but inventory would increase by;$320,000. Wisconsin Snowmobile would have to finance the extra inventory at a cost of 15.5 percent.;a-1. Determine the extra cost or savings of switching over to level production. (Input the amount as a;positive value.);(Click to select);$;a-2. Should the company go ahead and switch to level production?;Yes;No;b. How low would interest rates need to fall before level production would be feasible? (Input your;answer as a percent rounded to the nearest whole number.);http://ezto.mheducation.com/hm.tpx;Page 9 of 13;Assignment Print View;10/31/14, 4:11 PM;Interest rate;%;View Hint #1;Worksheet;19.;Difficulty: Intermediate;Learning Objective: 07-05 Inventory management requires;determining the level of inventory necessary to enhance;sales and profitability.;award;2.00 points;Johnson Electronics is considering extending trade credit to some customers previously considered poor;risks. Sales would increase by $210,000 if credit is extended to these new customers. Of the new accounts;receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 4 percent of;sales, and production and selling costs will be 80 percent of sales. The firm is in the 10 percent tax bracket.;a. Compute the incremental income after taxes.;Incremental income after taxes;$;b. What will Johnsons incremental return on sales be if these new credit customers are accepted? (Input;your answer as a percent rounded to 2 decimal places.);Incremental return on sales;%;c. If the accounts receivable turnover ratio is 7 to 1, and no other asset buildup is needed to serve the new;customers, what will Johnsons incremental return on new average investment be? (Do not round;intermediate calculations. Input your answer as a percent rounded to 2 decimal places.);Incremental return on new average investment;%;View Hint #1;Worksheet;20.;Difficulty: Intermediate;award;2.00 points;Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 8;percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production;and selling costs are 79 percent, and the accounts receivable turnover is four times. Assume income taxes;of 35 percent and an increase in sales of $70,000. No other asset buildup will be required to service the;new accounts.;a. What additional investment in accounts receivable is needed to support this sales expansion?;Incremental accounts receivable;$;b. What would be Hendersons incremental aftertax return on investment? (Input your answer as a;percent rounded to 2 decimal places.);Return on incremental investment;%;c. Should Henderson liberalize credit if a 14 percent aftertax return on investment is required?;Yes;No;Assume that Henderson also needs to increase its level of inventory to support new sales and that;the inventory turnover is four times.;d. What would be the total incremental investment in accounts receivable and inventory needed to support;a $70,000 increase in sales?;Total incremental investment;$;e. Given the income determined in part b and the investment determined in part d, should Henderson;extend more liberal credit terms?;Yes;No;View Hint #1;Worksheet;http://ezto.mheducation.com/hm.tpx;Difficulty: Challenge;Learning Objective: 07-05 Inventory management requires;determining the level of inventory necessary to enhance;sales and profitability.;Page 10 of 13;Assignment Print View;21.;10/31/14, 4:11 PM;award;3.00 points;Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these;customers will provide $414,000 in additional credit sales, 8 percent are likely to be uncollectible. The;company will also incur $17,400 in additional collection expense. Production and marketing costs represent;76 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of five times. No;other asset buildup will be required to service the new customers. The firm has a 10 percent desired return.;a-1. Calculate the incremental income after taxes.;Incremental income after taxes;$;a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2;decimal places.);Return on incremental investment;%;a-3. Should Fast Turnstiles Co. extend credit to these customers?;Yes;No;b-1. Calculate the incremental income after taxes if 11 percent of the new sales prove to be uncollectible.;Incremental income after taxes;$;b-2. Calculate the return on incremental investment if 11 percent of the new sales prove to be uncollectible.;(Input your answer as a percent rounded to 2 decimal places.);Return on incremental investment;%;b-3. Should credit be extended if 11 percent of the new sales prove uncollectible?;Yes;No;c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 8 percent;of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.);Return on incremental investment;%;c-2. Should credit be extended if the receivables turnover drops to 1.6, and 8 percent of the accounts are;uncollectible?;No;Yes;View Hint #1;Worksheet;22.;Difficulty: Challenge;award;4.00 points;Global Services is considering a promotional campaign that will increase annual credit sales by $530,000.;The company will require investments in accounts receivable, inventory, and plant and equipment. The;turnover for each is as follows;Accounts receivable;Inventory;Plant and equipment;2 times;5 times;1 time;All $530,000 of the sales will be collectible. However, collection costs will be 4 percent of sales, and;production and selling costs will be 70 percent of sales. The cost to carry inventory will be 5 percent of;inventory. Depreciation expense on plant and equipment will be 10 percent of plant and equipment. The tax;rate is 30 percent.;a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the;turnover ratios. Add the three together.;Accounts receivable;Inventory;Plant and equipment;$;Total Investment;$;http://ezto.mheducation.com/hm.tpx;Page 11 of 13;Assignment Print View;10/31/14, 4:11 PM;b. Compute the accounts receivable collection costs and production and selling costs and then add the;two figures together.;Collection cost;Production and selling costs;Total collection, production, and selling costs;c.;$;$;Compute the costs of carrying inventory.;Cost of carrying inventory;$;d. Compute the depreciation expense on new plant and equipment.;Depreciation expense;$;e. Compute the total of all costs from parts b through d.;Total costs;$;f. Compute income after taxes.;Income after taxes;$;g-1. What is the aftertax rate of return? (Input your answer as a percent rounded to 2 decimal places.);Aftertax rate of return;%;g-2. If the firm has a required return on investment of 8 percent, should it undertake the promotional;campaign described throughout this problem?;No;Yes;View Hint #1;Worksheet;23.;Difficulty: Challenge;award;3.00 points;Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days, which is also the average;collection period. Dome does not offer a discount for early payment, so its customers take the full 90 days;to pay.;a. What is the average receivables balance? (Use a 360-day year.);Average receivables balance;$;b. What is the receivables turnover? (Use a 360-day year.);Receivables turnover;times;View Hint #1;Worksheet;24.;Difficulty: Challenge;award;1.00 point;Dome Metals has credit sales of $216,000 yearly with credit terms of net 45 days, which is also the average;collection period. Assume the firm adopts new credit terms of 2/15, net 45 and all customers pay on the last;day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan;which costs 9 percent. The new credit terms will increase sales by 10 percent because the discount will;make the firm's price competitive.;a. If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new;credit terms are adopted? (Use a 360-day year.);Net change in income;$;b. Should the firm offer the discount?;No;Yes;http://ezto.mheducation.com/hm.tpx;Page 12 of 13;Assignment Print View;10/31/14, 4:11 PM;View Hint #1;Worksheet;http://ezto.mheducation.com/hm.tpx;Difficulty: Challenge;Page 13 of 13

 

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