Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Piepkorn Manufacturing Working Capital Management, Part 2 After completing the short-term financial plan for next year (at the end of [ Chapter 16), Gina Piepkorn

image text in transcribed

Piepkorn Manufacturing Working Capital Management, Part 2 After completing the short-term financial plan for next year (at the end of [ Chapter 16), Gina Piepkorn approaches you and asks about the company's credit policy. In looking at the competition, most companies in the industry offer credit to customers, so Piepkorn Manufacturing appears to be one of the few companies that does not. Several customers have expressed the possibility of changing to a different supplier because of the lack of credit. Gina is interested in knowing how implementing a credit policy will affect the short-term financial plan for next year. Additionally, she would like you to inquire as to the possibility of getting improved credit terms for the company's purchases. To analyze the possible switch to the new credit terms, Gina has asked you to investigate industry standard credit terms and rework the short-term financial plan assuming Piepkorn Manufacturing offers credit to its customers. She also would like to investigate how better credit terms from the company's suppliers would affect the short-term financial plan. QUESTIONS 1. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 45 . The discount will begin to be offered on the first day of the year. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 60 percent of customers will take advantage of the credit offer and the accounts receivable period will be 24 days. Rework the cash budget and short-term financial plan under the new credit policy and a target cash balance of $80,000. What interest rate are you effectively offering customers? 2. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45 . Your suppliers have stated that they would offer new credit terms of 2/25, net 40 . The discount would begin to be offered on the first day of the year. What interest rate are the suppliers offering the company? Rework your cash budget and short-term financial plan from the previous question assuming you take advantage of the discount offered

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions