Problem 2: (10 points) The following information about Douglas Corp.’s Accounts
ID: 2498822 • Letter: P
Question
Problem 2: (10 points)
The following information about Douglas Corp.’s Accounts Receivable and Sales are presented below:
Year 2015-Beginning Balance of A/R = $791M
Year 2015 -Ending Balance of A/R = $807M
Year 2015 - Sales = $3,002M
Assumptions:
Sales growth will be equal to 6% per year
A/R turnover will stay constant throughout the forecast period
Required:
a.
Using this information, forecast Douglas Corp.’s the growth in Accounts Receivable for years 2016-2020.
(please attach excel file)
b.
What problem does a constant A/R turnover assumption cause?
c.
Provide a solution to the problem caused by a constant A/R turnover assumption.
Year 2015-Beginning Balance of A/R = $791M
Year 2015 -Ending Balance of A/R = $807M
Year 2015 - Sales = $3,002M
Assumptions:
Sales growth will be equal to 6% per year
A/R turnover will stay constant throughout the forecast period
Explanation / Answer
a) Douglas Corp.’s the growth in Accounts Receivable for years 2016-2020
Year sales Avg debtor Debtor Growth
AR turnover 2015 = 3002 / (791 + 807 ) = 3.758
b) constant AR turnover ratio helps in calculaion of average debtor
Average debtor = AR turnover ratio * turnover
Which helps in finding out the debtors at end
2015 3002 2016 3182.12 846.98 886.96 9 2017 3373.047 897.8 908.64 2.4 2018 3575.43 951.67 994.7 8.65 2019 3789.956 1008.77 1022.84 2.75 2020 4017.353 1069 1115.16 8.28Related Questions
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