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Question: Reconsider problem 19C. Assume the average


Reconsider problem 19C. Assume the average collection period is 120 days. All other factors are the same (including 12 percent uncollectibles). Should credit be extended?

Data from Problem 19C:
Comiskey Fence Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $15,700 in additional collection expense. Production and marketing costs represent 70 percent of sales. The firm is in a 34 percent tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return.
c. Should credit be extended if the receivables turnover drops to 1.5, and 12 percent of the accounts are uncollectible (as in part a)?



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> Assume in Problem 14 that the Bradley Corporation used LIFO accounting instead of FIFO; what would its gross profit be? What would be the value of ending inventory? Data from Problem 14: The Bradley Corporation produces a product with the following cost

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> Compute the cost of not taking the following cash discounts. a. 2/10, net 40. b. 2/15, net 30. c. 2/10, net 45. d 3/10, net 90.

> Midland Chemical Co. is negotiating a loan from Manhattan Bank and Trust. The small chemical company needs to borrow $500,000. The bank offers a rate of 8 ¼ percent with a 20 percent compensating balance requirement, or as an alternative, 9¾ percent with

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> What are three quantitative measures that can be applied to the collection policy of the firm?

> Use The Wall Street Journal or some other financial publication to find the going interest rates for the list of marketable securities in Table 7-1 on page 200. Which security would you choose for a short-term investment? Why?

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> Orbital Communications has operating plants in over 100 countries. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 100,000 kronas in Norway worth $35,000. The funds drew 12 percent interest, and the krona i

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> Assume that the new trade terms of 2/10, net 30 will increase sales by 15 percent because the discount makes the Dome’s price competitive. If Dome earns 20 percent on sales before discounts, should it offer the discount? (Consider the same variables as y

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2.99

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