McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $1,086,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 56 days after their purchases. Assume 365 days in year for your calculations.

1-What is the days' sales outstanding? Round your answer to two decimal places. 2-What is the average amount of receivables? Round your answer to the nearest cent.

3-What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places.

4-What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 56? Round your answers to two decimal places. Nominal cost: Effective cost:

5-What would happen to McDowells accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day? Round your answers to two decimal places.

DSO = Average receivables =

______________________________________________

Problem 15-6

Prestopino Corporation produces motorcycle batteries. Prestopino turns out 2,100 batteries a day at a cost of $5 per battery for materials and labor. It takes the firm 23 days to convert raw materials into a battery. Prestopino allows its customers 40 days in which to pay for the batteries, and the firm generally pays its suppliers in 30 days. Assume 365 days in year for your calculations.

1-By what amount could Prestopino reduce its working capital financing needs if it was able to stretch its payables deferral period to 47 days? Round your answer to the nearest cent. $

2-Prestopino's management is trying to analyze the effect of a proposed new production process on its working capital investment. The new production process would allow Prestopino to decrease its inventory conversion period to 18 days and to increase its daily production to 3,100 batteries. However, the new process would cause the cost of materials and labor to increase to $9. Assuming the change does not affect the average collection period (40 days) or the payables deferral period (30 days), what will be the length of its cash conversion cycle and its working capital financing requirement if the new production process is implemented? Round your answers to two decimal places.

Cash conversion cycle		days
Working capital financing	$