A company registered in 2015 a gross profit margin on sales of 25%, and has no i

Question

A company registered in 2015 a gross profit margin on sales of 25%, and has no inventories nor External Supplies. The receivables average term is 2.5 months, the payables average term (to suppliers and the Government) is 2 months, and the average VAT rate (paid and deductible) is 23%. With everything else constant, if the financial manager wants to reduce in 2016 the company’s working capital by 4,500€, the change in the cost of goods sold has to be between:

A. 48,430€ and 48,450€

B. 36,300€ and 36,350€

C. 4,450€ and 4,500€

D. -36,350€ and -36,300€

E. -48,450€ and -48,400€

Explanation / Answer

Therefore, the correct answer is option C. 4,450€ and 4,500€.

In 2015, gross profit margin on sales of 25%, and has no inventories nor external supplies. The receivables average term is 2.5 months also and the a payables average term is 2 months and average VAT is 23%.

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