Greetings sir.
For calculating cost of discount (1%), why don't we take 30/360 into consideration in order to consider the area of impact - and instead we calculate for whole year, unlike when we were calculating Interest saved and reduction in receivables and the answer at back did focus on taking 30/360 into account.
Second, why is the receivable amount $750,000 never used for calculations ? Is it possible to solve it using receivable amount instead of credit sales ? If so - can you show the working ?
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BPP: OTQ - Managing Working Capital Q.49 Pg18
3y ago#1All credit customers paying within 30 days throughout the year will get a 1% discount.
Given that 35% of them pay within 30 days, then 35% of all of the credit sales during the year will get a 1% discount.
The reduction in receivables of 131,250 is the reduction from the current 750,000 (it is not the new level of receivables), and the answer shows two different ways of arriving at the same figure. By all means calculate the new average receivables (49.5/360 x $4,500,000) and you will see for yourself that this is 131,250 less than the current 750,000.
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