Assume that the operation of your business resulted in sales of $900,000 last year. Year-end receivables are $120,000. You are considering factoring the receivables to raise cash to help finance your venture's growth. The factor imposes a 5 percent discount and charges an additional 1.2 percent for each expected ten-day average collection period over thirty days. If the $900,000 in sales last year were evenly distributed throughout the year, an average of $120,000 in receivables outstanding would imply what average collection period? Given the original terms stated in the problem, what dollar amount would you expect to receive for your receivables?
Assume that the operation of your business resulted in sales of $900,000 last year. Year-end receivables are $120,000. You are considering factoring the receivables to raise cash to help finance your venture's growth. The factor imposes a 5 percent discount and charges an additional 1.2 percent for each expected ten-day average collection period over thirty days. If the $900,000 in sales last year were evenly distributed throughout the year, an average of $120,000 in receivables outstanding would imply what average collection period? Given the original terms stated in the problem, what dollar amount would you expect to receive for your receivables?
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Assume that the operation of your business resulted in sales of $900,000
last year. Year-end receivables are $120,000. You are considering
factoring the receivables to raise cash to help finance your venture's
growth. The factor imposes a 5 percent discount and charges an
additional 1.2 percent for each expected ten-day average collection
period over thirty days.
If the $900,000 in sales last year were evenly distributed throughout the
year, an average of $120,000 in receivables outstanding would imply
what average collection period? Given the original terms stated in the
problem, what dollar amount would you expect to receive for your
receivables?
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