14. Integrity Motors normally writes checks in the amount of S15,000 each day. I

Question

14. Integrity Motors normally writes checks in the amount of S15,000 each day. It akes five firm also receives checks in the amount of S12,000 daily but loses four days while they are being deposited and cleared. What is the firm's disbursement float, collections float, and net float? days for these checks to clear through the banking system. The 15. Following is the aging schedule for ASA Corporation: 0-30 days 31-60 days Over 60 days $100,000 70,000 30,000 40 If its DSO is 37 days, on average, on what day does ASA collect from customers who take longer than 60 days to pay for their purchases? 16. FMC Company's average collection period (DSO) is 37 days, which is only seven days longer than the net 30 terms the company offers credit customers. Fifty percent of FMC's customers pay on average on Day 20, and 30 percent pay on Day 40. On what day do the remaining credit customers pay? Assume FMC has no bad debts. 17. Richards, Inc. has a variable operating cost ratio of 60 percent, its cost of capital is 12 percent, and current sales are $100,000. All of its sales are on credit, and it currently sells on terms of net 30. Its accounts receivable balance is $20,000. The firm is considering a new credit policy with terms of net 45. Under the new policy, sales will increase to $120,000, and accounts receivable will rise to $30,000. Compute the days sales outstanding (DSo) under the existing policy and the proposed policy.

Explanation / Answer

Solution :-

Disbursement float = $15,000 * 5 days

= $75,000

Collection float = $12,000 * 4 days

= $48,000

Net float = Disbursement float minus Collection float

= Disbursement float - Collection float

= $75,000 - $48,000

= $27,000

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