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RECEIVABLES INVESTMENT McDowell Industries sells on terms of 3,10, net 30. Total sales for the year are $912,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days after their purchases. a. What is the days’ sales outstanding? b. What is the average amount of receivables? c. What is the percentage cost of trade credit to customers who take the discount? d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days? e. What would happen to McDowell's accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30 th day?

BuyFind

Fundamentals of Financial Manageme...

8th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285065137
BuyFind

Fundamentals of Financial Manageme...

8th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285065137

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Chapter
Section
Chapter 15, Problem 5P
Textbook Problem

RECEIVABLES INVESTMENT McDowell Industries sells on terms of 3,10, net 30. Total sales for the year are $912,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days after their purchases.

  1. a. What is the days’ sales outstanding?
  2. b. What is the average amount of receivables?
  3. c. What is the percentage cost of trade credit to customers who take the discount?
  4. d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days?
  5. e. What would happen to McDowell's accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

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Chapter 15 Solutions

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
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