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 $
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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