Question

Click here to read the eBook: The Cash Conversion Cycle RECEIVABLES INVESTMENT Leyton Lumber Company has sales of $10 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $2 million. Assume 365 days in year for your calculations. What is Leyton's DSO? Round your answer to two decimal places.   days What would DSO be if all customers paid on time? Round your answer to two decimal places.   days How much capital would be released if Leyton could take actions that led to on-time payments? Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. $

Answer 1

a. DSO is computed as shown below:

= ( Accounts receivables / Sales ) x 365 days

= ( $ 2 million / $ 10 million ) x 365 days

= 73 days

b. DSO is computed as follows:

= ( $ 2 million / $ 10 million ) x 30 days

= 6 days

c. The capital that would be released is computed as follows:

= ( $ 10,000,000 / 365 ) x 30

= 821,917.81 Approximately

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