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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 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 30th day?

a.

Summary Introduction

To determine: Number of days sales outstanding

Account receivable:

Receivables, likewise alluded to as records receivable, are obligations owed to an organization by its clients for products or administrations that have been conveyed or utilized however not yet paid for.

Explanation

Given,

Sales of the year is $912,500.

The customer pays 40% on the 10th day.

The customer pays 60% on the 40 days after.

Formula to calculate the number of days outstanding:

Day'ssalesoutstanding=(Discountday's×Percentageofdebtors+Netdays'×Percentageof

b.

Summary Introduction

To determine: The average amount of receivables.

c.

Summary Introduction

To determine: The percentage cost of trade credit to customers.

d.

Summary Introduction

To determine: The percentage of the cost of credit sales, which is not taken by the customer.

e.

Summary Introduction

To determine: The effect on the account receivable if collection policy of the company is tough.

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