Exam 28: Credit and Inventory Management

Lory Corporation has variable costs per unit of $.35 per $1 of sales. The firm offers a 2% discount for orders paid within 15 days if the customer increases their order size by 5%. A customer normally orders $75,000,and is considering the discount. Normally,the customer pays within 30 days with no discount. Lory 's cost of debt capital is 12%. Would Lory be wise to offer the discount? Calculate the NPV of the decision.

Delta Distributors has an investment in accounts receivable of $3,000,000. Daily credit sales are $120,000. If 30% of Delta's credit customers receive a discount by paying within 10 days,what is the net period that Delta maintains?

When credit is granted to another firm this gives rise to a(n):

Delta Distributors has an investment in accounts receivable of $2,750,000. Daily credit sales are $118,280. If 30% of Delta's credit customers receive a discount by paying within 10 days and the remainder of Delta's customers pay in 40 days,what is the net period that Delta maintains?

Selling goods and services on credit is:

The Lemon Company made a credit sale of $15,000. The invoice was sent today with the terms,1/10 net 30. This customer normally pays at the net date. If your opportunity cost of funds is 10% the expected payment is worth how much today?

The average collection period measures:

Businesses,in deciding to extend credit to new customers,try to reduce defaults by:

Ali Storage Company projects 800 customers next year. Of these,600 have been profitable and have never defaulted on past obligations,while 200 have not been profitable. All of the unprofitable accounts are expected to default if given credit. Ali can pay $0.40 to an agency that will tell them whether a customer has been profitable. If Ali's price per unit is $10,and its cost per unit is $6,should they allow the credit check to be performed? Assume a discount rate of 1%.

If 25% of the customers pay on day 10 and 75% pay on day 30,the average collection period is:

A commercial draft is useful to a seller because:

The Ault Company made a credit sale of $15,000. The invoice was sent today with the terms,3/15 net 60. This customer normally pays at the net date. If your opportunity cost of funds is 9% the expected payment is worth how much today?

The credit decision usually includes riskier customers. The credit decision should adjust for this by:

The Lemon Company made a credit sale of $20,000. The invoice was sent today with the terms,3/10 net 30. This customer normally pays at the net date. If your opportunity cost of funds is 10% the expected payment is worth how much today?

Aggie Corporation has been asked by its customers to grant them a 2% discount if they pay their bill within 15 days. The purchase size of the average order is $75,000. Normally,the customer pays within 30 days with no discount. Aggie's cost of debt capital is 12%. Should the request be granted?

The carrying value of a firm's account receivable is $700,000 and the average collection period is 45 days. The firm's credit sales per day are:

The decision to grant credit does not depend on:

Which of the following is not true concerning considerations in setting a credit policy?

Delta Distributors has total credit sales of $2,750,000 for the year. Delta's credit sales represent 75% of total sales. What are total sales?

The credit period offered is influenced by: