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 30^th 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.)

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). A. What is the firm's average collection period? B. What is the firm's current receivables balance? C. 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 30 th day? D. 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.)