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The Bimbo Corporation has been experiencing a decline in sales relative to its major competitors. Because Bimbo is confident about the quality of its products, it suspects that this sales loss may reflect its relatively stringent credit standards and terms. The firm currently has credit sales of $50 million annually. With current credit terms of "net 20," its average collection period is now 25 days. Bad-debt losses are 2 percent of credit sales. The firm's variable cost ratio is 0.80, and its required pretax return on receivables and inventory investments is 20 percent.
Bimbo plans to change its credit terms to "2/10, net 30." It expects 20 percent of its customers to take advantage of the cash discount. Bimbo also plans to relax credit standards and take on riskier accounts. This action is expected to increase credit sales by 30 percent. Bad-debt losses are expected to increase to 3 percent of credit sales, and the average collection period is expected to become 30 days. The company also estimates that an additional investment in inventory of $3 million is required because of the anticipated sales increase. Determine the net effect of this plan on the pretax profits of Bimbo.
You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $430 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in ..
Figurate Industries has 750,000 shares of cumulative preferred stock outstanding. It has passed the last three quarterly dividends of $2.50 per share and now (at the end of the current quarter) wishes to distribute a total of $12 million to its share..
CCS Inc. currently plays no dividends, but intends to pay a $12.00 per share dividend three years from today. However, CCSI expects earnings and dividends to decrease 5% annually thereafter. If the required rate of return for stocks with similar risk..
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One factor that can affect the market risk of a project is its degree of operating leverage, which is
The operating cost of a new machine is $500 for the first year. Starting the second year, the operating cost increases by $200 per year for the next 10 years. Calculate the equivalent annual operating cost of the machine. What will be the present and..
The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; What is the NAL for Wildcat? What is..
Suppose the risk free rate is 4% and the expected market return is 10%. If a stock's beta is 0.6, what required rate of return for shareholders should an analyst use for the stock?
Apply one (1) of the following economic concepts (supply, demand, market structures, elasticity, costs of production, GDP, Unemployment, inflation, aggregate demand, and aggregate supply) to the key points that you highlighted in Question 1.
Grant, Inc. acquired 40% of South Company's common stock for $200,000 on January 1, 2014. In its 2014 cash flow statement, Grant, Inc. reported an operating cash inflow related to its investment in South Company of $6,800. Calculate the amount of net..
select 3 outcomesconcepts you learned in this class. explain why there are important for you and how will you use what
A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?
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