Credit management

[hinanifaf]

Good Day All
Part A
A debtor age analysis reveals that a customer has owed R90 000 for 2months longer than the credit policy of 3 months.The company marks up all goods by 60% on cost and has a required rate of return of 18%.What will be the additional cost to the company of not receiving payment on time.

Part B
A supplier offers the following terms of payment, 5/1 month,net 3 months. The bank charges interest at the rate of 20% per annum on borrowings.Now the question is ,determine if it is of benefit to the firm to pay the supplier earlier.

Please any one who can solve this for me, i will appreciate it very much
Flora

[imdad1]

i am not having pen page and calculater although i can guide u steps to solve this question first of all keep cost of goods computed by bringing the owed amount (eg sales) to cogs and plot it at point "0" than plot month wise cash flows and show recovery at 5th month than compute IRR .this IRR is revised rate of return considering the delay in recovery. now campare the actual rate of return given in the question with required rate of return and the difference would be additional cost of extension/ Delay

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>hOriginally posted by hinanifaf</i>
<br />Good Day All
Part A
A debtor age analysis reveals that a customer has owed R90 000 for 2months longer than the credit policy of 3 months.The company marks up all goods by 60% on cost and has a required rate of return of 18%.What will be the additional cost to the company of not receiving payment on time.

Part B
A supplier offers the following terms of payment, 5/1 month,net 3 months. The bank charges interest at the rate of 20% per annum on borrowings.Now the question is ,determine if it is of benefit to the firm to pay the supplier earlier.

Please any one who can solve this for me, i will appreciate it very much
Flora


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

[faisal_desperado]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by hinanifaf</i>
<br />Good Day All
Part A
A debtor age analysis reveals that a customer has owed R90 000 for 2months longer than the credit policy of 3 months.The company marks up all goods by 60% on cost and has a required rate of return of 18%.What will be the additional cost to the company of not receiving payment on time.

Part B
A supplier offers the following terms of payment, 5/1 month,net 3 months. The bank charges interest at the rate of 20% per annum on borrowings.Now the question is ,determine if it is of benefit to the firm to pay the supplier earlier.

Please any one who can solve this for me, i will appreciate it very much
Flora


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear Flora,

Although i am bit late in replying your query, however, i expect that it would serve your purpose, if the query is yet to be resolved.

Part A
Investment in receivables would be 90,000/1.6 = 56,250
Cost of investment in receivables would be
56,250 * 2/12 *18% = 1,687.5


Part B
Assuming that payment of $100 will be made at the end of the month just to avail cash discount.

Savings due to cash discount would be $100*5% = $5
Cost of borrowings for two months would be $100*20%*2/12=$3.33

Saving in alternative 1 --------------------$1.67.

Cash discount should be availed and payment should be made in 1 month.


Best Regards,

Faisal.

[hinanifaf]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by faisal_desperado</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by hinanifaf</i>
<br />Good Day All
Part A
A debtor age analysis reveals that a customer has owed R90 000 for 2months longer than the credit policy of 3 months.The company marks up all goods by 60% on cost and has a required rate of return of 18%.What will be the additional cost to the company of not receiving payment on time.

Part B
A supplier offers the following terms of payment, 5/1 month,net 3 months. The bank charges interest at the rate of 20% per annum on borrowings.Now the question is ,determine if it is of benefit to the firm to pay the supplier earlier.

Please any one who can solve this for me, i will appreciate it very much
Flora


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear Flora,

Although i am bit late in replying your query, however, i expect that it would serve your purpose, if the query is yet to be resolved.

Part A
Investment in receivables would be 90,000/1.6 = 56,250
Cost of investment in receivables would be
56,250 * 2/12 *18% = 1,687.5


Part B
Assuming that payment of $100 will be made at the end of the month just to avail cash discount.

Savings due to cash discount would be $100*5% = $5
Cost of borrowings for two months would be $100*20%*2/12=$3.33

Saving in alternative 1 --------------------$1.67.

Cash discount should be availed and payment should be made in 1 month.


Best Regards,

Faisal.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

[hinanifaf]

No not at all,i will go throw it and try to understand.
thanks