CMA Study Group

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  • 1.  WCM

    Posted 05-31-2020 01:29 AM
    A company with $4.8 million in credit sales per year plans to relax its credit standards projecting that this would increase credit sales by $720,000. The company's average collection period for new customers is expected to be 75 days, and the payment behavior of the existing customers is not expected to change. Variable costs are 80% of sales. The firm's opportunity cost is 20% before taxes. Assuming a 365 - day year, what is the company's benefit/loss on the planned change in credit terms?

    The answer is $120,490.

    Can someone explain this problem? I can provide the explanation if needed.

    Also how much emphasis is given to working capital management in the exam?

    Thank you! 


  • 2.  RE: WCM

    Posted 06-01-2020 01:53 AM
    Hii 
    Follow these steps:
    1. Increased investment in AR
    2. OC of increased investment in AR
    3. Benefit or loss



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    APOORV BANSAL
    Student
    Jaipur
    India
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  • 3.  RE: WCM

    Posted 06-01-2020 07:40 AM
    Thank you!