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You place an order for 400 units of inventory at a unit price of \(\$ 125\). The supplier offers terms of \(1 / 10\), net 30. 1\. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit? 2\. What is the discount being offered? How quickly must you pay to get the discount? If you do take the discount, how much should you remit? 3\. If you don't take the discount, how much interest are you paying implicitly? How many days' credit are you receiving?

Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/10, net 30 . Based on experience, 65 percent of all customers will take the discount. 1\. What is the average collection period for Kyoto Joe? 2\. If Kyoto Joe sells 1,300 forecasts every month at a price of \(\$ 1,700\) each, what is its average balance sheet amount in accounts receivable?

Tidwell, Inc., has weekly credit sales of \(\$ 19,400\), and the average collection period is 34 days. The cost of production is 75 percent of the selling price. What is the average accounts receivable figure?

A firm offers terms of \(1 / 10\), net 35. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if: 1\. The discount is changed to 2 percent. 2\. The credit period is increased to 60 days. 3\. The discount period is increased to 15 days.

Lipman, Inc., has an average collection period of 39 days. Its average daily investment in receivables is \(\$ 47,500\). What are annual credit sales? What is the receivables turnover?

Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection each year at a price per unit of \(\$ 425\). All sales are on credit with terms of \(1 / 10\), net 40 . The discount is taken by 60 percent of the customers. What is the total amount of the company's accounts receivable? In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 2/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?

Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight highbypass turbine engines, which increase fuel economy. The variable cost is \(\$ 1.6\) million per unit, and the credit price is \(\$ 1.87\) million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 200 such orders is never collected. The required return is 2.9 percent per period. 1\. Assuming that this is a one-time order, should it be filled? The customer will not buy if credit is not extended. 2\. What is the break-even probability of default in part (a)? 3\. Suppose that customers who don't default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. Should the order be filled? What is the break-even probability of default? 4\. Describe in general terms why credit terms will be more liberal when repeat orders are a possibility.

The Silver Spokes Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 500 bicycles. The average cost to the shop of a bicycle is \(\$ 490\). The owner knows that only 96 percent of the customers will be able to make their payments. To identify the remaining 4 percent, the company is considering subscribing to a credit agency. The initial charge for this service is \(\$ 450\), with an additional charge of \(\$ 5\) per individual report. Should she subscribe to the agency?

Saché, Inc., expects to sell 700 of its designer suits every week. The store is open seven days a week and expects to sell the same number of suits every day. The company has an EOQ of 500 suits and a safety stock of 100 suits. Once an order is placed, it takes three days for Saché to get the suits in. How many orders does the company place per year? Assume that it is Monday morning before the store opens, and a shipment of suits has just arrived. When will Saché place its next order?