Question

A firm currently has annual credit sales of $912,500 for which the average collection period is...

A firm currently has annual credit sales of $912,500 for which the average collection period is 30 days. If, in response to allowing the average collection period to increase to 40 days, sales increased by 10 percent, what would be the additional investment in accounts receivable?

A. $26,800.

B. $35,000.

C. $26,000.

D. None of the above.

Homework Answers

Answer #1

Answer:B. $35,000.

Average collection period = 365 / (Sales / Accounts Receivable)

30 Days = 365 / (912500 / Accounts Receivable)

Accounts Receivable = 75000

If, in response to allowing the average collection period to increase to 40 days, sales increased by 10 percent, what would be the additional investment in accounts receivable?

Average collection period = 365 / (Sales / Accounts Receivable)

40 Days = 365 / (1003750 / Accounts Receivable)

Accounts Receivable = 110000

Additional Investment = 110000 - 75000 = 35000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Newkirk Corporation has annual credit sales of $29 million. The average collection period is 34...
The Newkirk Corporation has annual credit sales of $29 million. The average collection period is 34 days. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the average investment in accounts receivable as shown on the balance sheet? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)   Average receivables $   
The Paden Corporation has annual sales of $92 million. The average collection period is 54 days....
The Paden Corporation has annual sales of $92 million. The average collection period is 54 days. What is the average investment in accounts receivable as shown on the balance sheet? (Use 365 days per year. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)      Average accounts receivable $    Essence of Skunk Fragrances, Ltd., sells 7,300 units of its perfume collection each...
A firm is considering relaxing its credit standards which will result in annual sales increasing from...
A firm is considering relaxing its credit standards which will result in annual sales increasing from $1.50 million to $2.02 million. Costs of goods sold represent 49 percent of sales and the average collection period is expected to increase from 32 to 56 days. If the firm requires a return of 10.9 percent, what the cost of investing in the extra accounts receivables from the planned relaxation of credit standards?
TCBW last year had an average collection period (days sales outstanding) of 29 days based on...
TCBW last year had an average collection period (days sales outstanding) of 29 days based on accounts receivable of $530,000. All of the firm's sales are made on credit. The firm expects sales this year to be the same as last year. However, the company has begun a new credit policy that should lower the average collection period to 22 days. If the new average collection period is attained, what will the firm's accounts receivable balance equal? (Round your answer...
Nexus Enterprises has an inventory conversion period of 50 days, an average collection period of 35...
Nexus Enterprises has an inventory conversion period of 50 days, an average collection period of 35 days and a payables deferral period of 25 days. assume that cost of goods sold is 80% of sales. 1 what is the length of the firms cash conversion cycle? 2 if annual sales are 4380000 dollars and all sales are on credit what is the firm's investment in accounts receivable? 3 how many times per year does negus Enterprises turn over its inventory?
XYZ has accounts receivable with an average collection period of 25 days. A factor is willing...
XYZ has accounts receivable with an average collection period of 25 days. A factor is willing to finance the accounts receivable at 99% of face value. What is the effective annual rate on this financing? A. 14.0% B. 15.8% C. 21.2% D. none of the above
The credit terms of a firm currently is “net 30”. It is considering to change it...
The credit terms of a firm currently is “net 30”. It is considering to change it to “net 60”. This will have the effect of increase in firm’s sales. As the firm will not relax credit standards, the bad debt losses are expected to remain at same percentage, that is, 3% of sales. Incremental production, selling and collection costs are 80% of sales and expected to remain constant over the range of anticipated sales increases. The relevant opportunity cost for...
A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5...
A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm’s required return on investments is 20 percent. The firm’s cost of marginal investment in accounts receivable is (a)$5,556. (b)$9,943....
2. The Pettit Corporation has annual credit sales of $2 million. Current expenses for the collection...
2. The Pettit Corporation has annual credit sales of $2 million. Current expenses for the collection department are $30,000, bad debt losses are 2 percent, and the DSO is 30 days. Pettit is considering easing its collection efforts so that collection expenses will be reduced to $22,000 per year. The change is expected to increase bad debt losses to 3 percent and to increase the DSO to 45 days. In addition, sales are expected to increase to $2.2 million per...
ALei Industries has credit sales of $151 million a year. ​ ALei's management reviewed its credit...
ALei Industries has credit sales of $151 million a year. ​ ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of 40 days. a.  What is the maximum level of accounts receivable that ALei can carry and have a 40-day average collection​ period? b.  If​ ALei's current accounts receivable collection period is 50 ​days, how much would it have to reduce its level of accounts receivable in order to achieve its goal...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT