CQD$7002$

Question $4$

Syarikat Hankyu Jaya is considering to offer a $3\%$ cash discount to customers that paid within $20$ days. Currently, on average it takes the company $60$ days to collect from the customers. At present it sales stood at $60,000$ units with average selling price of RM$50$ per unit and variable cost per unit at RM$40$ per unit.

The company expects that by changing the credit terms, it would result increased in sales to $70,000$ units, in which $60\%$ will be taking the cash discount. The average collection period is expected to decline to $40$ days. If the required rate of return on the equal risk investment is $20$ percent, should the company give the cash discount? $($Assuming there are $365$ days in a year$)$

i$.$ Calculate additional profit contribution from sales.

$(4$ marks$)$

ii$.$ Calculate the marginal investment in account receivable.

$(5$ marks$)$

iii. Calculate the cost of cash discount.

$(4$ marks$)$

iv$.$ Calculate net profit or loss in implementing the proposal.

$(3$ marks$)$

b$)$ Harta Diri is analyzing the performance of its cash management. On an average, the firm holds inventory $65$ days, pays its suppliers in $35$ days, and collects its receivables in $15$ days. The firm has a current annual outlay of RM$1,960,000$ on operating cycle investments. Harta Diri currently pays $10$ percent for its negotiated financing. $($Assuming a $360$ day year.$)$

i$.$ Calculate the firms's Operating Cycle.

$(3$ marks$)$

ii$.$ Calculate the Cash Conversion Cycle.

$(3$ marks$)$

iii. Calculate the daily expenditure and the firm's annual saving if the operating cycle is reduced by $15$ days.

$(3$ marks$)$

$($Total: $25$ marks$)$