Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: Mississippi Delta Inc. has been selling switching equipment to computer companies on net 30 terms, in which payment is expected by thirty days from the invoice date. Concerned about deteriorating collection patterns, the credit manager has divided customers into two groups for examination purpose; prompt payers and laggards. Prompt payers [80% of Mississippi Delta’s customers] pay, on average, in thirty-five days, versus a 72-day average for the laggards. The manager wonders if the credit terms should be modified to include a two percent cash discount on invoices paid within 10 days. The average invoice is the same for both groups, roughly 4,000 dollars. The manager expects fifty percent of the prompt payers to pay in exactly ten days and the average on the other half to slip to 40 days. He thinks that the twenty percent of the laggards will pay is ten days and the average on the others will slip to 70 days. Given these forecasts, he is not sure that the lost revenue from discount takers (who would then pay only 98 percent of the invoiced dollar amount) justifies the improved collection. The company’s yearly cost of capital is eleven percent.

[A] Sensitivity analysis involves varying the key assumptions, one at a time, and observing the effect on the key decisions criterion-such as profits or net present value. In the net present value analysis above, how could one carry out sensitivity examine? [If you have a financial spreadsheet available, conduct a sensitivity analysis that varies the number of prompt payers who will pay me exactly ten days and report your findings.]

[B] What other factors should be taken into account before Mississippi Delta Inc. makes a switch, assuming such is justifiable on an net present value basis.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M916713

Have any Question? 


Related Questions in Basic Finance

Assignmentreturn on investment education fundingdevelop a

Assignment Return on Investment: Education Funding Develop a three- to four-page analysis (excluding the title and reference pages) on the projected return on investment for your college education and projected future em ...

Assignment1 go to the ishares website at wwwisharescom and

Assignment 1. Go to the iShares website at www.ishares.com, and look up information about the following bond index funds: Barclays 1-3 Year Credit Bond Fund (CSJ) Barclays Intermediate Credit Bond Fund (CIU) iShares 10+ ...

Please comment on the followingthe automobile industry was

Please comment on the following: The automobile industry was quite prosperous in the 1920s, but was hit hard by the depression. Studebaker Corporation, which was relatively weak to begin with, suffered more than other au ...

This assigment requires a word and excel documentcash flow

This assigment requires a word and excel document Cash Flow Estimation and Capital Budgeting Case Assignment Estimating Project Cash Flows ABC Golf Equipment Corporation is considering venturing into the golf club manufa ...

The firm sell for cash but sometimes extended to credit

The firm sell for cash but sometimes extended to credit. Jeda offers 2/10 net 30 term. About 30% of $2 million turnover is sold on credit, 80% of these sale are settled within 10 days, 5% of the remainder becomes bad deb ...

Access the fasb online website and familiarize yourself

Access the FASB Online website and familiarize yourself with the contents. Write a 350- to 700-word paper in which you answer the following questions: • What is the FASB Codification System? • What is the purpose of the ...

Convex mechanical supplies produces a product with the

Convex Mechanical Supplies produces a product with the following costs as of July 1, 20X1:     Material $ 5 Labor 3 Overhead 2   $ 10  Beginning inventory at these costs on July 1 was 6,700 units. From July 1 to December ...

Assignmentnote be sure to show all calculations to receive

Assignment NOTE: Be sure to show all calculations to receive credit and follow the Assignment Instructions. 1. BubbaBraggard is very excited because sales for his nursery and plant company are expected to double from $65 ...

1a certain investment will pay 10000 in 20 years if the

1)A certain investment will pay $10,000 in 20 years. If the annual return on comparable investments is 8%, what is this investment currently worth? Show your work. 2)You take out a 5-year car loan for $20,000. The loan h ...

Problem -kevin gmbh a company based in germany has received

Problem - Kevin Gmbh, a company based in Germany, has received today, 7 June 2014, an order to sell 12,000 tons of fertilizer to a client based in Chicago, USA. Kevin's production cost is 280 Euro per ton of fertilizer, ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate