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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Original Message:
Sent: 05-31-2020 01:29 AM
From: Shri Gowri Sundararaman
Subject: WCM
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!