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Problem 16.5 from page 602, Chapter 16 Milwaukee Surgical Supplies, Inc. Sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000,
Problem 16.5 from page 602, Chapter 16
Milwaukee Surgical Supplies, Inc. Sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000, and the collections department estimates that 30% of the customers pay on the tenth day and take discounts, 40 percent pay on the 30th day, and the remaining 30% pay, on average, 40 days after the purchase. (Assume 360 days per year).
- What is the firm?s average collection period?
- What is the firm?s current receivables balance?
- What would be the firm?s new receivables balances if Milwaukee Surgical toughened up on its collection policy, with the result that all nondiscount customers paid on the 30th day?
- Suppose that the firm?s cost of carrying receivables was 8% annually. How much would the toughened credit policy save the firm in annual receivables carrying expense? (Assume that the entire amount of receivables had to be financed.)
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