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  3. 2. abc maintenance service a. abc fbo sells mainte

2. ABC Maintenance Service A. ABC FBO sells maintenance services to various private jet operators....

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Accounting

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2. ABC Maintenance Service A. ABC FBO sells maintenance services to various private jet operators. For these services, it demands payment within 20 days. It is considering changing this policy to 0.5%/7, net 20. What is the implicit annual rate in the new policy? Use a notional purchase of $1,000. B. ABC's maintenance service business grosses some $13M per year before discounts and its average days receivable is 20. If 35% of its clients opt to follow the new policy, what will be the change in receivables? If ABC's WACC is 8.0%, what are the projected savings of the new policy? If its gross margin is 20%, by how much will gross dollar revenues have to rise to offset the loss from discounts in dollars and in percent? F10 X E D B) Average Collection Period A B 1 A) Effective Annual Rate (EAR) 2 3 Notional purchase 4 Discount (%) 5 Days difference 6 7 Discount ($) 8 Rate (%) 9 Days difference in 1 year Gross revenue Avg. receivables before new policy % paying early Avg. receivables after new policy Change in receivables Cost of capital Projected savings in capital costs minus: discounts Projected savings net of discounts Gross margin Gross revenues must rise by: in dollar's - in percent 10 11 EAR 12 13 14 15 16 17

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