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Lengthening the credit period Parker Tool is considering lengthening its credit period from 30 to 60 days. All customers will continue to pay on the net date. The firm currently bills $420,000 for sales and has $330,000 n variable costs. The change in credit terms is expected to increase sales to $50000 Bad de expenses wi crea se 1% to 1.5% of sales The firm has a required rate of return on equal-risk investments of 20%. (Note: Assume a 365-day year.)
a. What additional profit contribution from sales will be realized from the proposed change?
b. What is the cost of the marginal investment in accounts receivable?
c. What is the cost of the marginal bad debts?
d. Do you recommend this change in credit terms?
Use the CEQ form of the CAPM to find the NPV of the venture to a diversified investor.
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A small Canadian company has contracted to purchase 100,000 toys for £ 3.50 each from a British company. The Canadians have agreed to pay in pounds ( £). The Canadians have also agreed to sell the toys to a U.S. company for U.S.$5.50 per toy. What im..
The bond has a 7.10% yield to maturity, but it can be called in 6 years at a price of $1, 045. What is the bond's yield to call?
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