ACCT407 Corporate Financial Management

Question 1

Solution to part A

Solution to part B

Annual equivalent cost is highest for 3 years that is $525.68 which means truck should be operated for optimum economic life of 3 years.

Question 2

Risks or costs in offering credit to customers leads to:

Reduced cash flow: When payments are delayed by customers then ability to purchase from supplier reduces and ability to pay bills are also affected (Credit risk 2022).

This can be mitigated by reviewing financial history of customers to make sure that they have good record of making payments timely.

Pay collection agency: when customer stops making payments then there will be much loss and for that collection agency can be hired to get customer to pay their bill. Hence, a fee needs to be paid to collection agency.

This can be mitigated if customer makes payment directly to original creditor.

Large debts: when debts are large and it is not paid then unpaid debt poses huge business risk.

This can be mitigated by making more frequent payments.

What is the cost of offering credit to customers for your business? | Credit Management Group UK (2020). Available at: https://www.cmgroupuk.com/news-and-advice/what-is-the-cost-of-offering-credit-to-customers-for-your-business/ (Accessed: 17 January 2022).