Accounts receivable changes with bad debts A firm is evaluating accounts receivable change that would increase bad debts from 2% to 4% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 60,000 units.
a. What are bad debts in dollars currently and under the proposed change?
b. Calculate the cost of the marginal bad debts to the firm.
c. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? Explain.
d. Considering all changes in costs and benefits, would you recommend the proposed change? Explain.
e. Compare and discuss your answers in parts c and d.
Zero-balance account Union Company is considering the establishment of a zero balance account. The firm currently maintains an average balance of $420,000 in its disbursement account. As compensation to the bank for maintaining the zero balance account, the firm will have to pay a monthly fee of $1,000 and maintain a $300,000 non–interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed zero-balance account, and make a recommendation to the firm, assuming that it has a 12% opportunity cost.
Cost of bank loan Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year).
a. How much interest (in dollars) will the firm pay on the 90-day loan?
b. Find the effective 90-day rate on the loan.
c. Annualize your result in part b to find the effective annual rate for this loan, assuming that it is rolled over every 90 days throughout the year under the same terms and circumstances.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more