Use the information in the table below to answer the questions concerning Company C’s current credit...
Use the information in the table below to answer the questions concerning Company C’s current credit policy.
|
net 40 |
|
|
Sales |
$9,000,000 |
|
Lag factor |
3 |
|
Cost of capital |
8% |
|
Bad debt, % sales |
5% |
|
Cost of goods sold, % sales |
79% |
|
G&A, % sales |
9% |
1. What is the present value of the firm’s daily net sales?
2. What is the firm’s daily cost of good sold?
3. What is the firm’s DSO (Net + lag factor)?
4. What is the present value of the firm’s daily G&A expense?
5. What is the net present value of the firm’s current policy?
Homework Answers
Assuming the above figure is given on per annum (360 days) following is done:
1) PV of the firm's daily net Sales = Daily net sales * PV factor for the net credit period = ($9,000,000*0.95/360) * 1/(1+0.08*43/360) = $23,525.20 (approx).
2) Firm's daily cost of goods sold = Firm's daily sales * COGS % = $9,000,000/360 * 79% = $19,750.
3) Firm's Days Sales Outstanding (Net + lag factor) = 40+3 = 43 days.
4) PV of the firm's daily G&A expenses = Daily G & A expenses * PV factor for the period = $9,000,000/360 * 9% * 1/(1+0.08) = $2,083.33.
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