Question

Ch 04: End-of-Chapter Problems-Analysis of Financial Statements <Back to Assignment Attempts: 0 Keep the Highest: 0/11 12. Problem 4.20 Click here to read the eBook: Asset Management Ratios Problem Walk-Through DSO AND ACCOUNTS RECEIVABLE Ingraham Inc. currently has $735,000 in accounts receivable, and its days sales outstanding (DSO) is 67 days. It wants to reduce its DSO to 20 days by pressuring more of its castomers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 25 %. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent. Gradet Now Save &Continue Continue without saving NOV

Answer 1

DSO = 365 / [Sales / Accounts Receivable]

67 = 365 / [Sales / $735,000]

Sales / $735,000 = 365 / 67

Sales = 5.45 * $735,000 = $4,004,104.48

New Sales = Sales * (1 + g)

= $4,004,104.48 * [1 + (-0.25)] = $3,003,078.36

New DSO = 365 / [New Sales / New Accounts Receivable]

20 = 365 / [$3,003,078.36 / New Accounts Receivable]

$3,003,078.36 / New Accounts Receivable = 365 / 20

$3,003,078.36 / New Accounts Receivable = 18.25

New Accounts Receivable = $3,003,078.36 / 18.25 = $164,552.24