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 iilustrate the relationship between the size and shape of

1. IIlustrate the relationship between the size and shape of a distribution warehouse and the materials handling system. Why do some warehouses have square design while others are rectangular? 2. Explain the following st ...

1 how do scientists get ideas for research what are the

1. How do scientists get ideas for research? What are the advantages and potential disadvantages of each method for doing so? 2. What guidelines do scientists use to conduct an effective literature search? What specific ...

1 what factors should an investor consider when trying to

1. What factors should an investor consider when trying to decide whether to dispose of a property that he has owned for several years? 2. What causes the marginal rate of return to change over time? How can the marginal ...

Black hill inc sells 100 million worth of 27-year to

Black hill inc. sells $100 million worth of 27-year to maturity 10.81% annual coupon bonds. the net proceeds (proceeds after flotation costs) are $975 for each $1000 bond. What is the before tax cost of capital for this ...

1 how can tax-exempt bonds offer lower-cost mortgage money

1. How can tax-exempt bonds offer lower-cost mortgage money and how is this money generally used? 2. Explain the two basic kinds of mortgage pools used to back securities and the two different methods used to generate th ...

El dorado storage has the following projections for year 1

El Dorado Storage has the following projections for Year 1 of a capital budgeting project. Sales: $128,226 Fixed costs and selling, general and administrative expenses $12,951 Depreciation Expense $26,260 Tax Rate 35% Ca ...

Final project - fire 650refer to the template spreadsheet

Final Project - FIRE 650 Refer to the template spreadsheet provided.  Stock A has an annualized volatility equal to 18% for which you have just written an out-of-the-money 26 week call option.  The risk free rate is 2% p ...

On august 20 a stock index futures which expires on

On August 20 a stock index futures, which expires on September 20, was priced at 429.70. The index was at 428.51. The dividend yield was 2.7 percent. Discuss the concept of the implied repo rate on an index arbitrage tra ...

1 what makes managing employee health and safety programs

1. What makes managing employee health and safety programs around the world so difficult? 2. Why have family-friendly and work-life balance programs become so important? 3. Describe the kinds of health, safety, and secur ...

1 determine what special needs populations exist in your

1. Determine what special needs populations exist in your community. Select one, and find out whether special preparedness and emergency planning considerations have been made to accommodate their unique needs. 2. Assist ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen