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Wontaby Ltd. is extending its credit terms from 30 to 45 days. Sales are expected to...

Wontaby Ltd. is extending its credit terms from 30 to 45 days. Sales are expected to increase from $4.86 million to $5.96 million as a result. Wontaby finances short-term assets at the bank at a cost of 10 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.)

Annual financing cost           $

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Answer #1
Old accounts receivables = Sales * Days outstanding / 365 = 4860000 * 30 / 365 399452
New accounts receivables = Sales * Days outstanding / 365 = 5960000 * 45 / 365 734795
Increase in accounts receivables = New accounts receivable - Old accounts receivable = 734795 - 399452 335343
Annual financing cost = Increase in accounts receivables * Cost of finance = 335343 * 10% 33534
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