Use the following information to answer the next two questions. X-ray Inc. is a
ID: 2328379 • Letter: U
Question
Use the following information to answer the next two questions.
X-ray Inc. is a small manufacturing company. Currently, X-ray extends credit to its customers on a net 45 basis, but the company is having an issue with collecting payments in a timely manner. Currently, X-ray's customers pay 90 days (n=90) after being invoiced. X-ray is currently contemplating giving customers a 5% discount if they pay within 20 days of the invoice date. Currently, the average invoice amount is $12,000, but the company believes that the average invoice will grow to $12,300 if it provides a 5% discount. Futhermore, X-ray believes that 60% of its customers will pay in exactly 20 days (DSO=20) if the discount is introduced, while the remaining 40% will continue to pay 90 days after being invoiced. X-ray's annual cost of capital is 15%
1. What is the current present value of the average invoiced received by the corporation (ignoring the potential discount)? Round intermediate steps to four decimals.
10,145.63
13,018.32
11,571.84
11,782.03
2. Does it make financial sense for the company to pursue the 5% discount policy? Round intermediate steps to four decimals.
Yes
No
X-ray would be indifferent between using the discount policy and not issuing it.
Cannot be determined.
10,145.63
13,018.32
11,571.84
11,782.03
2. Does it make financial sense for the company to pursue the 5% discount policy? Round intermediate steps to four decimals.
Yes
No
X-ray would be indifferent between using the discount policy and not issuing it.
Cannot be determined.
Explanation / Answer
Answer:
1.Here option C is the right answer
C.11,571.84
2.Truely, it bodes well to issue rebate since display estimation of receipts after rebates increments And the table is formulated as below
Amount($) No. of days Present value Customers(%) Present value 12300 90 11861.29 40% 4744.516 12300 20 12199.73 60% 7319.838 Total 12064.354Related Questions
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