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Table 14.7 Fizzy Animators, Inc. currently makes all sales credit and

Question : Table 14.7 Fizzy Animators, Inc. currently makes all sales credit and : 1415280

 

Table 14.7

Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 films per year, selling price is $25,000 per film, variable cost per film is $18,750, and the average cost per film is $21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent. (Assume a 360-day year.)

31) What is the firm's marginal profit contribution from sales under the proposed plan of initiating the cash discount? (See Table 14.7)

A) $22,500

B) $40,000

C) $62,500

D) $100,000

32) What is the marginal investment in accounts receivable under the proposed plan? (See Table 14.7)

A) $1,234,375

B) $1,382,500

C) $1,567,300

D) $1,841,570

33) What is the cost of marginal investment in accounts receivable under the proposed plan? (See Table 14.7)

A) $313,460

B) $276,500

C) $246,875

D) $368,314

34) What are the savings of marginal bad debts under the proposed plan? (See Table 14.7)

A) $500,000

B) $50,000

C) $10,000

D) $5,000

35) What is the cost of the marginal cash discount? (See Table 14.7)

A) $768,750

B) $300,000

C) $307,500

D) $230,625

36) What is the net result of increasing the cash discount? (See Table 14.7)

A) +$33,750

B) -$33,750

C) +$128,750

D) -$58,750

 

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