When a firm initiates or increases a cash discount, the net effect on the accounts receivable investment is difficult to determine because the nondiscount takers paying earlier will reduce the accounts receivable investment, while the new customer accounts will increase this investment. Indicate whether the statement is true or false ANSWER TRUE
An applicant’s capacity to repay its requested credit can be found by ________. A) analyzing financial statements B) checking bank account balances C) analyzing tax payment history D) checking the covenants ANSWER A
A firm is analyzing a relaxation of credit standards that is expected to increase sales 10 percent. The firm is currently selling 400 units at an average sale price per unit of $575, and the variable cost per unit is $400 at the current sales volume. The average cost per unit is $425. What is […]
When a firm’s credit standards is relaxed ________. A) its sales is expected to decrease with corresponding increase in costs B) its costs is expected to decrease with corresponding decrease in sales C) its costs is expected to increase faster than sales if the standards are not relaxed D) its profit contribution from sales will […]
What is the firm’s additional profit contribution from sales under the proposed relaxation of credit standards? (See Table 14.5) A) $2,250 B) $6,750 C) $9,000 D) $69,000 ANSWER C
What is the cost of marginal investments in accounts receivable under the proposed plan? (See Table 14.5) A) $1,817 B) $1,867 C) $1,733 D) $1,617 ANSWER C
What is the cost of marginal bad debts under the proposed plan? (See Table 14.5) A) $383 B) $765 C) $3,315 D) $5,100 ANSWER C
What is the net result of implementing the proposed plan? (See Table 14.5) A) $3,952 B) $3,869 C) $2,084 D) -$2,084 ANSWER A
A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1. 75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales […]
A firm is considering relaxing credit standards which will result in an increase in annual sales from $3 million to $3. 75 million, a decrease in the cost of annual sales from $2,225,000 to $2,000,000, an increase in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 […]
