Size of Accounts Receivable. The Johnson Corporation has annual credit sales of $$31$ million. The average collection period is $33$ days. What is the average investment in accounts receivable as shown on the balance sheet?

Terms of Sale. A firm offers terms of $\frac{2}{15},$ net $40.$ What effective annual interest rate doe the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if:

a$.$ The discount is changed to $3$ percent

b$.$ The credit period is increased to $60$ days.

c$.$ The discount period is increased to $20$ days.

d$.$ What is the EAR for each scenario?

Safety Stocks and Order Points. Sache, Inc., expects to sell $700$ of its designer suits every week. The store is open seven days a week and expects to sell the same number of suits every day. The company has an EOQ of $500$ suits and a safety stock of $100$ suits. Once an order is place, it takes three days for Sache to get the suits in$.$ How many orders does the company place per year? Assume that it is Monday morning before the store opens, and a shipment of suits has just arrived. When will Sache place its next order?

Agency Issues. It is sometimes argued that excess cash held by a firm can aggravate agency problems $($discussed in Chapter $1)$ and more generally, reduce incentives for shareholder wealth maximization. How would you frame the issue here?