Problem No. 2 Receivables Investment McEwan Industries sells on terms of 3/10, net 25. Total sales for the year are $1,465,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 80 days after their purchases. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. What is the days sales outstanding? Round your answer to two decimal places. b. What is the average amount of receivables? Round your answer to the nearest cent. Do not round intermediate calculations. c. What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places. d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 80 days? Round your answers to two decimal places. Do not round intermediate calculations. e. What would happen to McEwan's accounts receivable if it toughened up on its collection policy with the result that all non-discount customers paid on the 25th day? Round your answers to two decimal places. Do not round intermediate calculations.

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
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1 Receivables investment
2
3
Credit Terms:
4
Discount%
5 Discount period (in days)
6 Amount due (in days)
7
8
9
10
11
12
13
14
15
16
Total sales
Number of days in year
% of customers that take discount
and pay on discount day
% of customers that pay after discount period
Average days after purchase
by nondiscount customers
17 Calculation of Dags Sales Outstanding (DSO):
Days sales outstanding (DSO)
18
19
20
Calculation of Average Amount of Receivable
21 Average receivables
22
23 Cost of Trade Credit:
24 Cost to discount customers
25
Nominal cost to nondiscount customers paying late on
Effective cost to nondiscount customers paying late on
26
27
28
29
30
31 Average receivableSH..
32
33
Calculation of Account Receivables if
Nondiscount Customers Paid When Due:
New days sales outstanding (DSON.)
3.00%
10
25
$1,465,000.00
365
80
80
40.00%
60.00%
80
0.00%
Transcribed Image Text:1 Receivables investment 2 3 Credit Terms: 4 Discount% 5 Discount period (in days) 6 Amount due (in days) 7 8 9 10 11 12 13 14 15 16 Total sales Number of days in year % of customers that take discount and pay on discount day % of customers that pay after discount period Average days after purchase by nondiscount customers 17 Calculation of Dags Sales Outstanding (DSO): Days sales outstanding (DSO) 18 19 20 Calculation of Average Amount of Receivable 21 Average receivables 22 23 Cost of Trade Credit: 24 Cost to discount customers 25 Nominal cost to nondiscount customers paying late on Effective cost to nondiscount customers paying late on 26 27 28 29 30 31 Average receivableSH.. 32 33 Calculation of Account Receivables if Nondiscount Customers Paid When Due: New days sales outstanding (DSON.) 3.00% 10 25 $1,465,000.00 365 80 80 40.00% 60.00% 80 0.00%
Problem No. 2 Receivables Investment
McEwan Industries sells on terms of 3/10, net 25. Total sales for the year are $1,465,000; 40%
of the customers pay on the 10th day and take discounts, while the other 60% pay, on average,
80 days after their purchases. Assume 365 days in year for your calculations. The data has been
collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the
required analysis to answer the questions below.
a. What is the days sales outstanding? Round your answer to two decimal places.
b. What is the average amount of receivables? Round your answer to the nearest cent. Do
not round intermediate calculations.
c. What is the percentage cost of trade credit to customers who take the discount? Round
your answers to two decimal places.
d. What is the percentage cost of trade credit to customers who do not take the discount
and pay in 80 days? Round your answers to two decimal places. Do not round
intermediate calculations.
e. What would happen to McEwan's accounts receivable if it toughened up on its collection
policy with the result that all non-discount customers paid on the 25th day? Round your
answers to two decimal places. Do not round intermediate calculations.
Transcribed Image Text:Problem No. 2 Receivables Investment McEwan Industries sells on terms of 3/10, net 25. Total sales for the year are $1,465,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 80 days after their purchases. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. What is the days sales outstanding? Round your answer to two decimal places. b. What is the average amount of receivables? Round your answer to the nearest cent. Do not round intermediate calculations. c. What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places. d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 80 days? Round your answers to two decimal places. Do not round intermediate calculations. e. What would happen to McEwan's accounts receivable if it toughened up on its collection policy with the result that all non-discount customers paid on the 25th day? Round your answers to two decimal places. Do not round intermediate calculations.
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