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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

RECEIVABLES INVESTMENT Lamar Lumber Company has sales of $10 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $2 million. What is Lamar’s DSO, what would it be if all customers paid on time, and how much capital would be released if Lamar could take action that led to on-time payments?

Summary Introduction

To determine: The DSO of L Company and the amount that would be freed up.

Receivables:

Receivables are defined as the amounts that are due to a firm by its customers and other parties. Receivables include all those assets that arise due to the primary operations of a firm and those representing cash that is to be collected from all external parties who owe money to the firm.

Explanation

Explanations:

Calculate the DSO as shown below.

DSO=ReceivablesSales/365=2,000,00010,000,000/365=73days

Therefore, the DSO of L Company is 73 days.

Calculate the amount that would be freed up as shown below

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