Assume there are two competitor firms, ABC and XYZ ABC had no credit losses last year, but 1 of XYZs accounts receivable proved to be uncollectible and resulted in losses Can you determine which firms credit manager is performing better Why or why not (2pts) Indicate by a ( ), ( ), or (0) whether each of the following events would most likely cause A R, sales, and profits to increase, decrease, or be affected in an indeterminate manner Also provide an explanation for each event and the affects (7pts) AR Sales Profit a The firm tightens its credit standards b The terms of trade are changed from 2 10, net 30, to 3 10, net 30 c The terms are changed from 2 10 net 30, to 3 10, net 40 d The credit manager gets tough with past due accounts Explanations On March 1, Minnerly Motors obtains business loan from a local bank The loan is a $50,000 interest only loan with a nominal rate of 9 Interest is calculated on a simple interest basis with a 365 day year What is Minnerlys interest charge for the first month (assuming 31 days in the month) You must show all calculations to receive credit (2pts) Cost of Bank Loans Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1 year loan of $40,000 First City has offered Hawley the alternatives listed below Calculate the effective annual interest rate for each alternative You must show calculations to receive full credit (6pts) A 11 annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year A 9 annual rate on a simple interest loan, with a 20 compensating balance required and interest due at the end of the year An 8 75 annual rate on a discounted loan, with a 15 compensating balance Monitoring of Receivables The Russ Fogler company, a small manufacturer of cordless telephones, began operations on January 1 Its credit sales for the first 6 months of operations were as follows Month Credit Sales January $120,000 February 100,000 March 50,000 April 160,000 May 140,000 June 105,000 Throughout this entire period, the firms credit customers maintained a constant payments pattern 20 paid in the month of sale, 30 paid in the first month following the sale, and 50 paid in the second month following the sale What was Foglers receivables balance at the end of March and at the end of June You must show calculations to receive full credit (2pts) Assume 90 days per calendar quarter What were the ADS and DSO for the first and second quarter You must show calculations to receive full credit (3pts) Construct an aging schedule as of June 30 Use account ages of 0 30, 31 60, and 61 90 days You must show calculations to receive full credit (3pts) Construct the uncollected balances schedule for the second quarter as of June 30 You must show calculations to receive full credit (3pts)

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Assume there are two competitor firms, ABC and XYZ. ABC had no credit losses last year, but 1% of XYZs accounts receivable proved to be

Assume there are two competitor firms, ABC and XYZ. ABC had no credit losses last year, but 1% of XYZs accounts receivable proved to be uncollectible and resulted in losses. Can you determine which firms credit manager is performing better? Why or why not? (2pts)

Indicate by a (+), (-), or (0) whether each of the following events would most likely cause A/R, sales, and profits to increase, decrease, or be affected in an indeterminate manner. Also provide an explanation for each event and the affects. (7pts)

AR Sales Profit

a. The firm tightens its credit

standards.

b. The terms of trade are

changed from 2/10, net 30,

to 3/10, net 30.

c. The terms are changed from

2/10 net 30, to 3/10, net 40.

d. The credit manager gets tough

with past-due accounts.

Explanations:

On March 1, Minnerly Motors obtains business loan from a local bank. The loan is a $50,000 interest-only loan with a nominal rate of 9%. Interest is calculated on a simple interest basis with a 365-day year. What is Minnerlys interest charge for the first month (assuming 31 days in the month)? You must show all calculations to receive credit. (2pts)

Cost of Bank Loans. Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of $40,000. First City has offered Hawley the alternatives listed below. Calculate the effective annual interest rate for each alternative. You must show calculations to receive full credit. (6pts)

- A 11% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year.

- A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year.

- An 8.75% annual rate on a discounted loan, with a 15% compensating balance.

Monitoring of Receivables. The Russ Fogler company, a small manufacturer of cordless telephones, began operations on January 1. Its credit sales for the first 6 months of operations were as follows:

Month Credit Sales

January $120,000

February 100,000

March 50,000

April 160,000

May 140,000

June 105,000

Throughout this entire period, the firms credit customers maintained a constant payments pattern; 20% paid in the month of sale, 30% paid in the first month following the sale, and 50% paid in the second month following the sale.

What was Foglers receivables balance at the end of March and at the end of June? You must show calculations to receive full credit. (2pts)

Assume 90 days per calendar quarter. What were the ADS and DSO for the first and second quarter? You must show calculations to receive full credit. (3pts)

Construct an aging schedule as of June 30. Use account ages of 0-30, 31-60, and 61-90 days. You must show calculations to receive full credit. (3pts)