Fundamentals of Financial Management, Third Edition

NUMERICAL PROBLEMS

1. A net 30 term accounts for a sale of Rs 10,00,000. There are 30% of the customers who do not make payments within time. Find out the average collection period and the average size of receivables. Will there be change in the average size of the receivables if the credit term is 2/10 net 30 and 70% of the customers avail of the discount?
2. A company relaxes its credit period from 60 to 90 days, as a result of which sales revenue increases by Rs 15,000; collection cost increases by 3%; bad debt increases by 2%; opportunity cost of capital is 12%; and variable cost is 80%. Find out the incremental profit.
3. Liberalisation in credit policy raises the average size of receivables by Rs 30,000 and the operating profits by Rs 15,000. Tax ...