Complete The Following Problems In Chapters 15 And 16

Complete the following problems in chapters 15 and 16 in the textbook

Complete the following problems in chapters 15 and 16 in the textbook: 1. P. P. P. P. P. P. P. P16-20 Follow these instructions for completing and submitting your assignment: 1. Do all work in Excel. Do not submit Word files or *.pdf files. 2. Submit a single spreadsheet file for this assignment. Do not submit multiple files. 3. Place each problem on a separate spreadsheet tab. 4. Label all inputs and outputs and highlight your final answer. 5. Follow the directions in "Guidelines for Developing Spreadsheets." You are not required to submit this assignment to Turnitin.

P 15-3 c. If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b? d. If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?

P15-9 P15–12 Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that sales will decline to 10,000 units as a result of the proposed change. The sale price per unit is $56, and the variable cost per unit is $45. The firm has a required return on equal-risk investments of 25%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) P15-16 P16-6 P16-13 P16-15 P16-20

Paper For Above instruction

Analyzing financial decisions is critical for firms to optimize profitability and manage risk effectively. Chapters 15 and 16 of the textbook address key financial concepts such as investment appraisal, working capital management, and credit policy decisions. This essay explores these topics, applying their principles to the problem scenarios provided, to demonstrate strategic financial decision-making under real-world conditions.

Problem 15-3: Computing the Profit Increase and Cost-Effectiveness

In scenario c, the firm considers increasing its annual profit by evaluating the impact of resource investments tied to a 13% cost of capital. The fundamental calculation involves determining the incremental profit that can be gained from these investments. If the change in part b results in additional revenue or cost savings exceeding the opportunity cost of capital, then the firm stands to benefit financially.

The maximum permissible investment increase is typically constrained by the marginal benefit exceeding the 13% cost of capital. Suppose the incremental earnings attributable to the investment are $50,000 annually, then the net gain after subtracting the cost (13% of the investment) could amount to a significant profit increase. Precise figures depend on detailed data from part b, such as revenue increase or cost reductions, which—if not provided—are estimated based on the scenario parameters.

In scenario d, when the yearly expense to realize the profit in c is $35,000, the recommendation hinges on whether the net profit increase exceeds this cost. If the project yields a profit boost greater than $35,000, the investment is justified; otherwise, it is not. Decision-makers should evaluate the return on investment (ROI) and consider alternative uses of capital with higher returns.

Problem 15-12: Shortening the Credit Period

The decision to shorten the credit period from 40 to 30 days involves analyzing multiple financial factors, including changes in average collection period, bad debts, sales volume, and the costs and benefits associated with the adjustment.

The proposed change is expected to reduce the average collection period from 45 to 36 days, improving cash flow and potentially reducing bad debt expenses from 1.5% to 1%. However, the firm anticipates a sales decline from 12,000 to 10,000 units, influenced by the more restrictive credit policy.

To evaluate the decision, a financial model assessing net benefits—from reduced bad debts and improved cash flow against lower sales revenue—must be constructed. The contribution margin per unit is $11 ($56 sale price minus $45 variable cost). The decrease in sales volume could result in a revenue loss of $112,000 (2,000 units x $56). Still, savings accrue from lower bad debt costs and more efficient cash collection.

A key metric is the net present value (NPV) of the proposed change, discounted at the 25% required rate of return. Calculating the present value of cash flows associated with the change—including incremental savings and costs—will determine whether the policy is financially beneficial. If NPV is positive, the firm should proceed; if negative, it should reconsider.

Discussion and Recommendations

Reducing the credit period can enhance liquidity and decrease bad debt expenses but also risks decreasing sales if customers are deterred by shorter credit terms. The decision should depend on a detailed analysis of cash flow improvements versus revenue losses, factoring in the cost of capital and potential impacts on customer relationships.

Based on the analysis, if the discounted benefits from improved cash collection and lower bad debts exceed the revenue loss from reduced sales, the firm should shorten its credit period. Otherwise, maintaining the current credit terms may be preferable. Strategic considerations, such as customer satisfaction and competitive positioning, should also influence the final decision.

Conclusion

Financial decision-making in a firm requires balancing risk and return, liquidity, and profitability. Analyzing investments using the cost of capital, evaluating credit policies through cash flow and risk assessments, and understanding their impacts on overall financial health are essential. Applying these principles, as shown in the above problems, can help firms optimize their financial strategies for sustained growth and profitability.

References

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