Data on Shick Inc. for 2008 are shown below, along with the days sales outstandi

Question

Data on Shick Inc. for 2008 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.

Select one:

a. $ 8,975

b. $10,970

c. $ 9,973

d. $12,067

e. $ 8,078

Project Data Sales $110,000 Accounts receivable $16,000 Days sales outstanding (DSO) 53.09 Benchmark days sales outstanding (DSO) 20.00

Explanation / Answer

Answer is "c" i.e. $9973

Working note

Daily sales outstanding = (Accounts receivable * 365)/Sales

or Account Receivable= Benchmarked DSO* sales/365

therefore Account receivable = 20*110000/365 = 6027.40 or $ 6027

Decline in accounts receivable = 16000 - 6027 = $9973

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