The Dawn H. Company supplies bulletin board services to numerous universities an
ID: 2790400 • Letter: T
Question
The Dawn H. Company supplies bulletin board services to numerous universities and colleges in canada. Miss dawn is investigating the desirability of employing a billing firm owned by Jessica B. to do her billing and collections. Because the billing firm specializes in these services, collection float will be reduced by 15 days. average daily collections are $2,500, and the owner can earn 10% anually (expressed as an APR with quarterly compounding) on her investments. If the Jessica B. billing firm charges $750 per quarter, should the owner of Dawn H. Company employ the billing firm? why or why not? (show your calculations)
Explanation / Answer
Interest to be earned on reduction of average coolection period = 2500 X 15 X (1.025)4 - 2500 X 15 = $ 3893
Annual Cost of billing firm = $ 750 X 4 = $3000
Benefit to be realised on employing billing firm = 3893 - 3000 = $ 893
Hence company should employ the billing firm
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