Reduction in profit contribution from decline in sales
Course:- Financial Management
Reference No.:- EM13942988

Assignment Help
Assignment Help >> Financial Management

A company is considering shortening its credit period from 30 days to 20 days and believes as a result of its change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to .8 percent of sales. the firm is currently selling 300,000 units but believes as a result of the change that sales will decline to 275,000 units. On 300,000 units the sales revenue is $4,200,000, variable costs total $3,300,000 and fixed costs are 300,000. The firm has a required return on similar risk investments of 15%. what is the reduction in profit contribution from decline in sales under the proposed plan?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
You borrow $5,000 at 10% per year and will pay off the loan in 3 equal annual payments starting one year after the loan is made. The end-of-year payments are $2010.57. Which o
TVM. Recently, you purchased a house with a market value of $500,000. The loan terms include a 20% down payment, an annual interest rate of 7% and a term of 30 years. Calculat
Which of the following methods can be used to improve the firm's cash conversion cycle? a) decrease the firm's inventory conversion cycle. b) increase the firm's receivables c
A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm's cost of cap
XYZ Corporation has a British supplier and an Argentinian buyer. Transactions with his UK supplier are denominated in UK pounds and transactions with his Argentinian buyer are
The term structure of interest rates is affected by which of the following? I. Interest rate risk premium II. Real rate of interest III. Default risk premium IV. Inflation pre
Garret Simpson Investments is evaluating a firm (Garp, Inc.) for recommendation to its clients and trying to evaluate the firm's current stock price. The firm is about to offe
The maximum federal tax rate on personal income in 2010 was 50%. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity finan