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

1 what is the break-even mortgage interest rate beir in the

1. What is the break-even mortgage interest rate (BEIR) in the context of financial leverage? Would you ever expect an investor to pay a break-even interest rate when financing a property? Why or why not? 2. Why might a ...

Suppose you think msft stock is going to appreciate

Suppose you think MSFT stock is going to appreciate substantially in the next yr. The stock's current price is $100and call options expiring in 1 yr has an exercise price of $100 and is selling for $5. With $1,000 to inv ...

1 what are the tensions between standardization and

1. What are the tensions between standardization and localization of the PM system of the MNE? 2. How does the international character of the MNE impact the design of the PM system? 3. How does the international characte ...

Explain the difference between a short hedge and a long

Explain the difference between a short hedge and a long hedge ? a. What is the basis? b. How is the basis expected to change over the life of a futures contract? c. Explain why a strengthening basis benefits a short hedg ...

1 since the 1960s which measure of the money supply has

1. Since the 1960s, which measure of the money supply has grown more rapidly, M1 or M2? Briefly explain why this is the case. Has the growth of M1 been more or less stable than the growth rate of M2? 2. Define liquidity. ...

1 discuss the effects of risk and term of a bond on the

1. Discuss the effects of risk and term of a bond on the interest rate paid. 2. What are some of the constraints on the recovery and growth of the GSE and private mortgage-backed securities market? 3. How can pre-purchas ...

Question 1 outline the differences between common stock and

Question 1: Outline the differences between common stock and preferred stock? Question 2: What are the differences between capital projects that are independent, mutually exclusive, and contingent? Question 3: Cortez Art ...

A company begins a review of ordering policies for its

A company begins a review of ordering policies for its continuous review system by checking the current policies for a sample of SKUs. Following are the characteristics of one item. Annual Demand (D) = 64 units/week (Ass ...

What does the word sustainable mean in sustainable growth

What does the word sustainable mean in "sustainable growth model"? In what ways can the sustainable growth model highlight conflicts between a firm's competing objectives?

What is the purpose of risk management industry standards

What is the purpose of risk management industry standards? What responsibilities does senior management assume in a risk management system? What is the most important component of an effective risk management system? Bri ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro