Question

Data on Huizenga Enterprises for the most recent year are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year. Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box. Sales $150,000 Accounts receivable $23,000 Days sales outstanding (DSO) 55.97 Benchmark days sales outstanding (DSO) 20.00

Answer 1

Days Sale Outstanding =(Accounts Receivable/Cr Sale)*365

Given Days Sales outstanding=55.97 days

Sales =$150,000

Accounts Receivable=$23,000

So to get to the Benchmark days sales outstanding (DSO) =20.00 lets assume the average receivable is x

Sales=$150,000

Days Sales outstanding =(Accounts Receivable/Cr Sale)*365

20.00=x/$150,000)*365

Solving we get x =8,219.178082191781   (the accounts receivable amount at which the DSO would equal the benchmark of 20.00)

So the decline would be $23,000-$8,219.178082191781   That's equal to 14,780.82191780822 Rounding we get 14,780.82