Dr.Lan HFT 4464 Homework 3 Q1. The A Club has annual sales (all on credit) of 10

Question

Dr.Lan HFT 4464 Homework 3 Q1. The A Club has annual sales (all on credit) of 10,000,000 a year. Assume its accounts receivable turnover is 8 times. What is the average accounts receivable balance? What is the average collection period? If the ACP is to be reduced to 40 days, how much must the average accounts receivable balance a. b. c. be reduced? Q2 The B Company has total revenue of $4,000,000 last year, its profit margin was 1.25% and its beginning balance and ending balance for total assets were $1,000,000 and $3,000,000, respectively. What is the ROA of B Company? ROA- English (United States) Previous Page 1 of 1 192 words

Explanation / Answer

a Annual Sales 10000000 Account Receivable turnover 8 times Accounts Receivable Turnover - Sales/Average accounts Receivable 10000000/8 = Average accounts Receivable Average Accounts Receivable 1250000 b Average collection period - 365/Accounts Receivable turnover 365/8 45.63 days c 365/40 = Accounts receivable turnover 9.125 10000000/9.125 = Average accounts Receivable Average Accounts Receivable 1095890 Accounts Receivable should be reduced to (1250000-1095890) 154109.6 Q2 Total Revenue - $4000000 Profit Margin - 1.25%*4000000 50000 Average Total assets - (1000000+3000000)/2 2000000 Return on Assets - Net Income/Average Total assets 2.50%

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