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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.
If 10 year T-bonds have a yield of 6.0%, 10 year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1,3% and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default ris..
Three years ago, James Matheson bought 340 shares of a mutual fund for $23 a share. During the three-year period, he received total income dividends of 0.68 per share. He also received total capital gain distributions of $1.65 per share. At the end o..
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calculate and compare the financial ratios listed further down this document for the fiscal year ending 2014, and prepare your comments about the two companies' performances based on your ratio calculations.
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You deposit $8,000 into a retirement account at the end of the next 12 years earning 10% interest, what is the future value of your retirement after 12 years?
Identify what Southwest Airlines sought to accomplish for its stakeholders. Evaluate Southwest Airlines' actions with respect to employees and customers. Assess Southwest Airlines’ achievements in the area of corporate governance.
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $170,000. The project will produce 850 cases of mineral water per year indefinitely. What is the NPV of the project? Do not round int..
Electronic Products has 35,000 bonds outstanding that are currently quoted at 102.3. The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm's aftertax cost of debt if the applicable tax rate is 30 percent?
A coupon bond paying semi annual interest is reported as having an ask price of 126% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond?
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