Question
Three Waters Co.s CFO has decided to take a closer look at the companys credit policy. Three Waters Co. has annual sales of $379.3 million,
Three Waters Co.s CFO has decided to take a closer look at the companys credit policy. Three Waters Co. has annual sales of $379.3 million, and it currently has an accounts receivable balance of $47.6 million. The first step in analyzing the firms credit policy is to determine its days sales outstanding (DSO).
Based on this information, Three Waters Co.s DSO is45.81 days . (Note: Use 365 days as the length of a year in all calculations.)
The average DSO for Three Waters Co.s industry is 54.1 days. Assuming that its sales stayed the same, what would be Three Waters Co.s receivables balance if it maintained the industry average DSO?
Three Waters Co.s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Three Waters Co. to lose 6% of its sales revenue. What would Three Waters Co.s expected accounts receivables balance be if it decides to tighten its credit policy?
$24,909,089
$29,304,810
$33,700,532
$27,839,570
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