McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,973,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 72 days after their purchases. Assume 365 days in year for your calculations.
Nominal cost: | % |
Effective cost: | % |
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SOLUTION :
a.
Outstanding sales (days) = 10*0.40 + 72*0.60 = 47.20 (ANSWER).
b. c.
Average amount of receivables = 1973500*47.2/365 = 255283.29 ($)
d. e.
Cost of credit (on discount takers)
= 0% (ANSWER)
f. g.
Cost of credit (not discount takers)
Nominal cost
= (0.03/0.97)*365/(72-10)
= 0.1821
= 18.21% (ANSWER).
Effective cost
= (1 + 0.03/0.97)^(365/(72 - 10)) - 1
= 0.1964
= 19.64% (ANSWER).
h. i.
DSO = 10*0.40 + 30*0.60 = 22 days (ANSWER).
Accounts receivables = 1973500*22/365 = 118950.68 ($) (ANSWER).
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