McDowell Industries  sells on terms of 3/10, net 30. Total sales for the year are $912,500;  40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days after their purchases.   What is the day’s sales outstanding? What is the average amount of receivables? What is the percentage cost of trade credit to customers who take the discount? What is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days. What would happen to McDowell’s account receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

McDowell Industries  sells on terms of 3/10, net 30. Total sales for the year are $912,500;  40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days after their purchases.

 

  1. What is the day’s sales outstanding?
  2. What is the average amount of receivables?
  3. What is the percentage cost of trade credit to customers who take the discount?
  4. What is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days.
  5. What would happen to McDowell’s account receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?
  6.  
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps with 2 images

Blurred answer
Knowledge Booster
Trade Credit
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education