Chapter 3: 18BP_b (page 251)
If you borrow \(5,300 at \)400 interest for one year, what is your effective interest rate for the following payment plans?
b. Semi-annual payments.
The effective interest rate is 10.06%.
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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?
What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?
Darla’s Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period
Briefly discuss three types of lender control used in inventory financing.
If a firm uses a just-in-time inventory system, what effect is that likely to have on the number and location of suppliers?
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