16.5 in Healthcare Finance: An Introduction to Accounting and Financial Management on on page 555.

 

16.5 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 percent of the customers pay on the tenth day and take discounts, 40

 

 percent pay on the thirtieth day, and the remaining 30 percent 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 balance if Milwaukee Surgical

 

 toughened up on its collection policy, with the result that all nondiscount

 

 customers paid on the 30th day

 

d. Suppose that the firm’s cost of carrying receivables was 8 percent

 

 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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