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1.ABC Inc. currently grants no credit, but it is considering offering new credit terms: net 30. As a result, the price of its product will increase by $1.50 per unit. The original price per unit is $50. Expected sales will increase by 1,000 units per year. The original sales are 10,000 units. Variable costs will remain at $26 per unit and bad debt losses will amount to $3,000 per year. The firm will finance the additional investment in receivables by using a line of credit, which charges 5 percent interest. The firm’s tax rate is 40 percent. Should the firm begin extending credit under the terms described? (Assume ABC benefits from the credit policy change indefinitely.)
2.In Problem 1, ABC is switching to 2/10 net 30. It is estimated that 80 percent of customers will take advantage of the discount, while the remaining 20 percent will pay on day 30. The price will remain the same at $51.50 per unit, unit sales will remain at 11,000 per year, and variable costs will remain at $26 per unit. Bad debt losses will not be affected. Use a 40 percent tax rate and a 5 percent discount rate. Should the firm switch to the new policy?
Compute retained earnings from the following information; determine the retained earnings balance as of December 31, 2008 Retained earnings, December 31, 2009 $490,400.
reimburses employees who earn masters degrees and who agree to remain with the firm for an additional 3 years should
An interest rate is 12.23% per annum expressed with continuous compounding. What is the equivalent rate with semiannual compounding? (margin of error: +/- 0.01%)
Assume that the risks free rate increases but the mnarket risk premium remains constant. What impact would this have on the cost of debt? on the cost of Equity?
stone sour inc. has sales of 16550 costs of 5930 depreciation expense of 1940 and interest expense of 1460. if the tax
The second discount rate is known as the social discount rate. It is based on judgments about the collective value that society attaches to a policy. Proponents argue that the social discount rate is preferred because it broadens the preferences cons..
Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations.
You are planning to make monthly deposits of $450 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 25 years?
What steps can this company take to diversify its portfolio? Define diversification and its necessity in risk management. Discuss at least 5 steps to diversify the card business.
Christensen and Associates is development an asset financing plan. Christensen has $500,000 in current assets of which 15 percent are permanent, and $700,000 in fixed assets.
You borrowed 10000 and the bank required annual end-of-year payments for 10 years at a nominal annual interest rate of 6%. It is the end of year 5 and you want to pay off the loan. About how much would it cost you to pay off the loan?
Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?
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