Credit management

hinanifaf · 08-16-2010, 08:20 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by faisal_desperado
 <blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by 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

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