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Hi sir,
I dont know how to calculate extra cash saving available if reduce credit or delay payables. Plz help me with the calculation method used.
For example how examiner arrived to figures 128500 for 30 days credit and 75500 for 40 days payable.
Thank u
Sales are 1,600, so 1,600/365 = 4.384/day
Reducing the credit period by 29 days will increase cash by 29 x 4.383 = 127,136, which I think has been rounded, rather confusingly, to 125,000.
Payables are incurred at 1375/365 = 3.767 days are currently about 20 and if this were increased by 20 to the more normal 40, then (40 – 20) x 3.767 = 75 extra would be kept in the bank.
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