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Q1.Assume a 365-day year. Calculate Account Receivable with the following information. Total Sales=800 million Cash Sales=70...

Q1.Assume a 365-day year. Calculate Account Receivable with the following information.
Total Sales=800 million Cash Sales=70 million Average collection days=10

Q2. The net profit margin of a firm is 8% and its total asset turnover is 1.5. What is firm’s Return on Investment?

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Answer #1

Question 1

Calculation of Accounts Receivables.

Given information

Total Sales= 800 million

Cash sales= 70 million

Credit sales= Total sales-cash sales (800-70)= 730 million

Average Collection days = 10 days

Accounts Receivables= (Credit sales/number of days in year)*Average collection days

Accounts Receivables= (730 million /365)*10days

Accounts Receivables= 20 million

Question 2.

Calculation of the Return on Investment

Return on Investment= Net Income / Cost of Investment (Total Assets)

Net income = Total turnover* net profit margin%

Net income = 800*8%

Net income = 64 million

Total Assets= Total sales(turnover)/total asset turnover ration

Total Assets = 800/1.5

Total Assets= 533.33 millions

Return on Investment =64 /533.33

Return on Investment = 12%

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