Receivables investment McDowell Industries sells on terms of 3/10, net 25. Total
ID: 2651084 • Letter: R
Question
Receivables investment
McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,561,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 74 days after their purchases. Assume 365 days in year for your calculations.
What is the days' sales outstanding? Round your answer to two decimal places.
days
What is the average amount of receivables? Round your answer to the nearest cent.
$
What is the percentage cost of trade credit to customers who take the discount? Round your answer to two decimal places.
%
What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 74? Round your answers to two decimal places.
Nominal cost: %
Effective cost: %
What would happen to McDowell’s accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 25th day? Round your answers to two decimal places.
DSO = days
Average receivables = $
Explanation / Answer
McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,561,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 74 days after their purchases. Assume 365 days in year for your calculations.
What is the days' sales outstanding? Round your answer to two decimal places.
Days' sales outstanding = 40%*10 + 60%*74
Days' sales outstanding = 48.40 Days
What is the average amount of receivables? Round your answer to the nearest cent.
Average amount of receivables = Days' sales outstanding/365 * Total sales
Average amount of receivables = 48.4/365 * 1561000
Average amount of receivables = $ 206,992.88
What is the percentage cost of trade credit to customers who take the discount? Round your answer to two decimal places.
Cost of trade credit to customers = Discoun/(1-discount) * 365/(25-10)
Cost of trade credit to customers = 3%/(1-3%) * 365/15
Cost of trade credit to customers = 75.25%
%
What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 74? Round your answers to two decimal places.
Nominal cost: %
Cost of trade credit to customers = Discoun/(1-discount) * 365/(74-10)
Cost of trade credit to customers = 3/(1-3%) * 365/64
Cost of trade credit to customers = 17.64%
Effective cost:
Effective cost = (1+ 3/97)^(365/(74-10)) - 1
Effective cost = 18.97%
What would happen to McDowell’s accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 25th day? Round your answers to two decimal places.
DSO = 40%*10 + 60%*25
DSO = 19 days
Average receivables = 19/365* 1561000
Average receivables = $ 81,257.53
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.