Receivables investment
McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,086,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 62 days after their purchases. Assume 365 days in year for your calculations.
A. What is the days' sales outstanding? Round your answer to two decimal places.
_____ days
B. What is the average amount of receivables? Round your answer to the nearest cent.
$ _____
C. What is the percentage cost of trade credit to customers who take the discount? Round your answer to two decimal places.
_____%
D. What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 62? Round your answers to two decimal places.
Nominal cost: _____ %
Effective cost: _____%
E. What would happen to McDowell’s accounts receivables if McDowell toughened up on its collection policy with the result that all non discount customers paid on the 25th day? Round your answers to two decimal places.
DSO = _____ days
Average receivables = $ _____