Lamar Lumber Company has sales of $9 million per year, all on credit terms calli

Question

Lamar Lumber Company has sales of $9 million per year, all on credit terms calling for payment within 30 days; and its accounts receivable are $2.25 million. Assume 365 days in year for your calculations.

a.What is Lamar's DSO? Round your answer to two decimal places.
days


b.What would DSO be if all customers paid on time? Round your answer to two decimal places.
days


c.How much capital would be released if Lamar could take actions that led to on-time payments? Round your answer to the nearest cent.
$

Explanation / Answer

a. DSO = account receivable/total credit sales *no of days =(2.25/9)*365 =91.25 days b. If all customers paid on time (assuming that it makes no sense for customers to pay earlier than 30 days), then the firm’s DSO = 30 days. c. If customers paid on time, the firm’s A/R = 30 * 9/365 =$0.73973 million Cash freed up = $2.25 – $0.73973 = $1.51 million

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