Question;hort-Term Financial Management ? FIN 4260Part 2 - Integrative CaseJones Wholesale, Inc.Jones Wholesale, Inc. is a medical equipment dealer selling to doctors, hospitals, and other medical providers. The company has historically been profitable, but is presently having cash flow problems.The firm is evaluating the sales forecast for the upcoming year for one of Jones? products, mobile ultrasound imaging units. Jones forecasts 27,000 units will be sold in the upcoming year (evenly distributed across the year).INVENTORY PURCHASES AND ACCOUNTS PAYABLEJones? supplier for this product recently introduced an aggressive quantity discount program. If Jones agrees to order 1,000 machines at a time, the price will drop by 1% from the regular price of $26,800/unit. Jones presently orders 500 units at a time, or 54 times a year (27,000/500). They estimate that ordering costs are $615/order and holding costs are $350/unit based on average inventory.The supplier offers 45 day credit terms. While not new, the supplier will begin enforcing the 22% fee for late payors. Presently, even though the terms are net 45, Jones? DPO averages 85 days. If Jones does not select the quantity discount program, it will continue to be offered net 45 terms. However, it will now be assessed the late fee.CREDIT TERMS AND ACCOUNTS RECEIVABLEJones sells the machines to its customers for $37,200. Jones sells to customers on 30 day terms. DSO generally runs 48 days. Jones does not aggressively manage collections, fearful that it will lose customers. A major competitor recently introduced 2/10, net 50 terms. If Jones matches the competition, it estimates that 40% of its customers would take advantage of the discount. Those not taking the discount will likely slow to 58 days. Jones would offer the discount to protect existing sales, but does expect sales growth from the new credit policy. It believes if it doesn?t offer the discount that sales will decrease by 3%.ANALYSISTo calculate value, Jones uses a required rate of return of 18%. Management wants to evaluate four combinations of inventory order quantity, A/P terms, and A/R terms that impact cash flows and the timing of cash flows. To determine the optimal combination, the highest NPV over the upcoming 360-day year will be selected. NPV is calculated by (1) calculating the PV of the cash inflows from sales (A/R), (2) subtracting the PV of the outflows related to the inventory (holding and ordering costs), and (3) subtracting the PV of the outflows related to purchasing decisions (A/P).The NPV from the present structure (modified for the late fee and expected loss in sales) will be compared to the four options below:? Case 1New A/R termsOld A/P terms (paying in 85 days with late fee)Current inventory quantity? Case 2New A/R termsOld A/P terms (paying on time in 45 days)Current inventory quantity? Case 3New A/R termsNew A/P terms (paying on time in 45 days)Higher inventory quantity with quantity discount? Case 4New A/R termsNew A/P terms (paying in 85 days with late fee)Higher inventory quantity with quantity discountTo determine the outcome for the various options, use Excel to perform the calculations. Which option should Jones choose? Why?After completing the preliminary analysis, another option is considered ? a Just In Time (JIT) Inventory System. Here, if Jones can plan ahead and estimate its need for the upcoming year, the supplier can ship units on a daily basis, eliminating the accumulation of inventory. If Jones adopted JIT, the order quantity would be only 75 units per order (27,000/360). Given the standing order, ordering costs would shrink to just $105/order and holding costs would be eliminated. With JIT, Jones will pay cash for all orders with the 22% late fee, but is offered no discount. A drawback is that Jones must commit to buy the inventory in advance, regardless of sales demand. To compensate for this risk, it will use a 25% opportunity cost for this option. Jones would continue to offer the new A/R terms. Does this new option change the decision? Why? Can you suggest a better option? Be creative!DELIVERABLES:1. Print the ?Summary Page? from the Excel Workbook.2. On a separate document conduct a thorough analysis (2 page maximum, 12 font, double-spaced). Your analysis should minimally include, but is not limited to:? Make an initial recommendation based on the present system and the four options, explain your recommendation incorporating elements learned in the course. Make sure to evaluate the details of each case outcome.? Update your recommendation after adding the JIT option to your analysis, explain your recommendation.? Discuss your own option (?Case X?), including your assumptions and if the result changed your recommendation.
Paper#49859 | Written in 18-Jul-2015Price : $39