Garcia Industries has sales of $200,000 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The indus

Question

4 years ago

11

Garcia Industries has sales of $200,000 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The indus

try average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant?

Business

1 answer:

katrin2010 [14] · Answer 1 · 2022-01-12T18:33:04+03:00

Answer:

$488.77

Explanation:

Rates : 8%

Sales : 167,500

A/R : 18,500

Days in Year 365

Sales/Day: 458.90

DSO : 40

Industry DSO : 27

(x / 167,500) x 365 = 27

Solve x = 12,390.41

x = This is the sum to be deducted for receivable accounts.

18500 - 12,390.41 = 6,109.59 decrease in Accounts Receivable

6,109.59 x 8% = 488.77

Interest earned and net revenue generated.