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Chapter 3: 5BP (page 249)
A pawnshop will lend \(2,500 for 45 days at a cost of \)35 interest. What is the effective rate of interest?
The effective interest rate is 11.2%.
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Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.
c. Should Henderson liberalize credit if a 16 percent after-tax return on investment is required?
Why might a firm keep a safety stock? What effect is it likely to have on carrying cost of inventory?
What is the difference between pledging accounts receivable and factoring accounts receivable?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
e. What additional information does the aging schedule bring to the company that the average collection period may not show?
In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.
b. How many orders will be placed during the year?
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