This company seels about $45 million an year on credit. Good credit and colletio

Question

This company seels about $45 million an year on credit. Good credit and colletions performance is the industry result in a 35 days ACP. What is the maximum receivable balance can tolerate and still receive a good rating with respect to credit and collection? Write the equation defining ACP, treat the A/R balance as the unknown and substitute given values and solve. Also, if this company is collecting on a average receivable in 40 dyas, by how much will have lower the receivable balance to achieve a good rating? Please help me...

Explanation / Answer

a) ACP =[(A/R)/sales]*360 35=[(A/R)/$45 million]*360 A/R=$4,375,000 b) 40=[(A/R)/45M]*360 A/R =$5,000,000 and $5,000,000-4,375,000 =$625,000

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