What is the overall value effect

Assignment Help Accounting Basics
Reference no: EM131073150

Norton Wrench, a machine tool company, recently found out that one of its main competitors has tightened its credit standards. Norton's chief operating officer has asked you to make a recommendation to the executive policy committee on whether the company should tighten its standards. The marketing department estimates that annual sales will drop $20,000 from the present level of $275,000. The variable cost ratio is 0.7 and will not change, according to one of the cost accountants. Variable expenses related to collections and credit administration are projected at 1.25 percent of sales under the existing standards but 1.45 percent of sales under the proposed standards. The bad debt expense rate on both existing and incremental (lost) sales is estimated to be 7 percent. The DSO of 56 days is not expected to change and can be applied to any sales gained or lost due to a change in credit standards. The company's annual cost of capital
is 15 percent.

a. Draw a cash flow timeline for 1 day's sales under existing credit policy

b. What is the value effect (ΔZ) of this decision on 1 day's sales?

c. What is the overall value effect (ΔNPV)?

d. Are there any nonfinancial considerations about which you believe the executive policy committee should be warned?

Reference no: EM131073150

Questions Cloud

Calculations to balance this equation : Use exact arithmetic or a rational format for calculations to balance this equation.
What are the values and priorities expressed by art styles : What are the values and priorities expressed by these styles? They all have something in common despite the visual differences -- what is it?
Prepare journal entries to record the transactions above : The patent was acquired in January 2015 and has a useful life of 10 years. The franchise was acquired in January 2012 and also has a useful life of 10 years. Prepare journal entries to record the transactions above
Describe the dispute and political risk : Describe the dispute and political risk. Analyze the situation. Conclude a possible way to avoid the dispute or risk OR a possible resolution.
What is the overall value effect : Norton Wrench, a machine tool company, recently found out that one of its main competitors has tightened its credit standards. What is the value effect (ΔZ) of this decision on 1 day's sales? What is the overall value effect (ΔNPV)
How the issue of white collar crime is presented in the film : Discuss how the issue of white collar crime is presented in the film. Do not give a scene-by-scene description of what happened in the movie. Who starred or appeared in the film (ie: the movie stars) or who directed the movie is not important.
When x5 = 0, what is the minimum value of x4 : Describe the general traffic pattern when the road whose flow is x5 is closed.
Explain why as a organization is legitimized by subordinates : What types of power are criminal justice employees most likely to consider legitimate?Explain why as an organization is "legitimized" by subordinates, it gains compliance from them.
Write a two page paper on the status of women : Write a two page paper on the status of women in the late 19th early 20th century. Please use Chicago Style formatting.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Provide a reasonable estimate of the nominal interest rate

The maturity premium is estimated by the difference between the average yield on 30-year Treasury bonds and 3-month Treasury bills.

  Using the presidents new assumptions

Using the president’s new assumptions in (1) above, prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.

  Uncollectible account if the hospital uses the allowance

Assuming the patient owed the hospital $ 3,000, prepare the entry or entries necessary to record the uncollectible account if the hospital uses the allowance method.

  Determine the ppa the company should record

ABC Company overstated 20Y1 revenue by $10,000. The error also affected 20Y2 by overstating revenue by $5,000. The company discovered the error in 20Y3, which included an overstatement to revenue of $3,000.The company reports only 20Y3 on the current..

  Andi qualifies for a home deduction the amount of space

Andi qualifies for a home deduction. The amount of space devoted to business use is 400 square feet of the total 2,000 square feet of her home. Randi's mortgage interest and property taxes in total are $1,600. Other deductions properly allocated to t..

  Which ones offer the subsidiary the most and least independ

Of the various methods by which a corporate subsidiary can be separated from the parent company in the public markets (IPO, carve-out, spin-off, split-off, and tracking stock), which ones offer the subsidiary the most and least independence?

  How much was net income for 20x7 and 20x8

Is total "working capital" reduced on the date of declaration, date of record, and/or date of payment?

  Amount of tax expense

Explain how the amount of tax expense for calender 2008 andthe amount of taxes payable (if any) at December 31, 2008, can bedetermined.

  Compare the price of the bonds sold by ethan to bonds

ethan jones is an investment broker. recently he contactedpotential investors and offered to sell them bonds that were

  There are three different forms of business sole-proprietor

there are three different forms of business sole-proprietor partnership and corporation.1 explain why a corporations

  The corporation has only four individual shareholders

If the corporation has only four individual shareholders

  Compute the equivalent units of production

Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd