Now assume that the new trade terms of 3/18, net 60 will increase Dome’s sales by 15 percent because the discount makes Dome’s price competitive. If Dome earns 20 percent on sales before discounts, what will be the net change in income? Should it offer the discount?

Dome Metals has credit sales of $180,000 yearly with credit terms of net 60 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 60 days to pay. What is the average receivables balance? Receivables turnover?

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Divide the aftertax return figure in part f by the total investment figure in part a. If the firm has a required return on investment of 8 percent, should it undertake the promotional campaign described throughout this problem?

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Subtract the answer from part e from the sales figure of $450,000 to arrive at income before taxes. Subtract taxes at a rate of 30 percent to arrive at income after taxes

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Add together all the costs in parts b, c, and d

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Compute the depreciation expense on new plant and equipment.

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Compute the costs of carrying inventory.

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Compute the accounts receivable collection costs and production and selling costs and add the two figures together

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

All$450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together

Slow Roll Drum 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$16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 120 days. Should credit be extended?

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows:

Given this income statement, compute the following: Degree of financial leverage.

Slow Roll Drum 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$16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 120 days. Compute the return on incremental investment.

Explain the similarities and differences of lockbox systems and regional collection offices.

Ultravision Inc. anticipates sales of $290,000 from January through April. Materials will represent 50 percent of sales, and because of level of production, material purchases will be equal for each month during the four months of January, February, March, and April. Materials are paid for one month after the month purchased. Materials purchased in December of last year were$25,000 (half of $50,000 in sales). Labor costs for each of the four months are slightly different due to a provision in the labor contract in which bonuses are paid in February and April. Fixed overhead is$11,000 per month. Prepare a schedule of cash payments for January through April. Here are the labor figures: