V. R. Rao and Company has been operating for five years as a software consulting firm specializing in the installation of industry standard products. During this period, it has experienced rapid growth in sales revenue and trade receivables. Ms. Rao and her associates all have computer science backgrounds. This year, the company hired you as its first corporate controller. You have put into place new credit-granting and collection procedures that are expected to reduce receivables by approximately one-third by year-end. You have gathered the following data related to the changes:

Required:
1. Compute the trade receivables turnover ratio based on two different assumptions:

a. Those presented in the preceding table (a decrease in the balance in trade receivables, net).

b. No change in the balance of net trade receivables; the balance was \(\$ 963,808\) at year-end.
2. Compute the effect (sign and amount) of the projected change in net trade receivables on cash flow from operating activities for the year.
3. On the basis of your findings in (1) and (2), write a brief memo explaining how an increase in the trade receivables turnover ratio can result in an increase in cash flow from operating activities. Also explain how this increase can benefit the company.

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Trade receivables Less: Allowance for doubtful accounts Net trade receivables Beginning of Year $1,000,608 36,800 $ 963,808 (in thousands) End of Year (projected) $660,495 10,225 $650,270 Current Year Net sales (assume all on credit) (projected) $7,015,069