west.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do Problem I Receivabl

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west.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do Problem I Receivables investment McDowell Industries se s on terms of 3/10, net 40. Total sales for the year are $1,088,000; 40% of the e stor erspay on the 10th 64 days after their purchases. Assume 365 days in year for your calculations. a. What is the days' sales outstanding? Round your answer to two decimal places y a take discounts, while the st ersosan, on a rape 42.4 days 42.4 days b. What is the average amount of receivables? Round your answer to the nearest cent. s 12638 c. What is the percentage cost of trade credit to customers who take the dscount? Round your answer to two dedie al places. 20.90 *% two decimal places d. What is the percentage cost of trade credit to customers who do not take the dscount and pay oe Day 647 Round your answers to Nominal cost (-27.09% Nominal cost: 27.09 % #% Effective cost: 27.09 policy with the result th at all nondiscount customers paid on the 40th day? Round your on lts collection receivables if Mdowed toughened e. What would happen to McDowell's accounts receivables if McDowell toughened up on its collection answers to two decimal claces 28 days DSO - Average recelvables 83463. Partially Correct Check 3

Explanation / Answer

Part C)

The cost of trade credit can be calculated with the use of following formula:

Cost of Trade Credit = Discount/(100 - Discount)*365/(Credit Period - Discount Period)

__________

Using the values provided in the question, we get,

Cost of Trade Credit = 3/(100 - 3)*365/(40 -10) = 37.63%

__________

Part D)

The cost of trade credit to customer who don't take discounts can be calculated with the use of following formula:

Nominal Cost of Trade Credit = Discount/(100 - Discount)*365/(Payment Period - Discount Period)

Effective Cost of Trade Credit = (1+Discount/(100 - Discount))^365/(Payment Period - Discount Period) - 1

__________

Using the values provided in the question, we get,

Nominal Cost of Trade Credit = 3/(100 - 3)*365/(64 - 10) = 20.90%

Effective Cost of Trade Credit = (1+3/(100-3))^(365/(64 - 10)) - 1 = 22.86%

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