Question

This question has two parts

Part one

Financial modeling. The following information is gathered from the pro forma financial statements for the upcoming year.

Sales $180,000

COGS $120,000

Accounts Payable $19,000

Accounts Receivable $27,000

Total Assets $72,000

Inventory $16,000

Following including other assumptions, the analysis indicates that the external financing needed (EFN) for the coming year will be $7,000.

Calculate the average days payable (ADP) that was assumed when deriving the initial amount of EFN ($7,000) from the model.

Part two

You know you want to make adjustments in your pro forma financial policies so that you will eliminate the need for external financing (want EFN to be $0). Since ADP affects the need for external financing, Calculate what the average days payable period (ADP) must be so that the firm will have an EFN of $0.

Answer 1