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1) Exercise 14.Relaxing Credit Standards Jonah's Boats, Inc. is considering relaxing its credit standards in order to meet a competitor's change in...
Exercise 14.3. Relaxing Credit Standards1)Jonah’s Boats, Inc. is considering relaxing its credit standards in order to meet a competitor’s change in credit policy. As a result of the proposed change, sales during the coming year are expected to increase 15%, from 5,000 boats to 5,750 boats, the average collection period is expected to increase from 35 days to 45 days, and bad debts are expected to increase from 2% to 3%. The average sale price per unit is $1,000 and the variable cost per unit is $850. The firm’s required return on investment is 10%.Evaluate the proposed change in credit standards and make a recommendation to the firm.2)Match each collection or disbursement technique with its description.Playing the floatConcentration bankingPreauthorized checkWire transfersOverdraft systemDirect sendLockboxA future check written against a customer’s checking account for an agreed-upon amount by the firm to which it is payable.Writing a check against money not currently in a checking account.The bank automatically covers all checks presented, even if there are insufficient balances.Telegraphic communications that, via bookkeeping entries, remove funds from the payer bank and deposit them in the account of the payee bank.Funds are transferred from the firm’s regional bank to its central disbursing bank on a when-needed basis.The bank collects receipts in a post office box for the firm.Express mail is used to transport the check directly to the bank on which it is drawn.
