Question

A) (CLO2) AL Ain company recently reported $3.1 million of net income. Its EBIT was $6 million, and its interest expense $ 300000. What is its tax rate?

B (CLO2) An evaluation of the books of Blair Supply, which gives the end-of-year accounts receivable balance, which is believed to consist of amounts originating in the months indicated. The company had annual sales of $2.1 million. The firm extends 30-day credit terms.

Month of origin Amounts receivable

Month of Origin	Amounts Receivable $
July	3,875
August	2,000
September	34,025
October	15,100
November	52,000
December	193,000
Year-end accounts receivable	400,000

Find the following:

a. Use the year-end total to evaluate the firm's collection system.
b. What is your comment of the company collection policy based on part a.

Answer 1

a) Calculation of the Tax Rate ;-

Net income = EBIT - interest expense - tax

3,100,000 = 6,000,000 - 300,000 - tax paid

Tax paid = $ 2,600,000

Tax rate = Tax paid / EBT = 2,600,000 / (6,000,000 - 300,000) = 0.45614035

Tax rate = 45.61%

B )

a) Average collection Period = Account receivable / average sales per day

Average sales per day = 2,100,000 / 365 =$ 5,753.4247

Average collection period = 400,000 / 5,753.4247 = 69.524 days

b) Since the average age of receivables is over 39.524 days beyond the net date,attention should be directed to accounts receivable management.