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Dear sir
while calculating the new receivable u did not deduct the cost of giving discount on the video lecture.but on this math to calculate the proposed receivable you deducted 26667 from the total turnover.why?
the way i calculated the new receivable is:
2/3*14=9.3days.1/3*26=8.6 days.sums up 17.9 days.then,4000000*17.9/365=196164.
which is totally different from the one you worked out.but i followed you video lecture to work it in such way as it seemed very easy,but i guess there are some lackings in my understanding.please help.But the question says that the average credit period will be 26 days. This is already the average of those who take and those who do not take the discount.
The discount was removed from the revenue because it is cash that will not be received. However, it does not matter whether you do this or not. The answer will be slightly different (but the difference is tiny) and the examiner has said that you will get full marks whether or not it is subtracted (sometimes in his answers he subtracts it, and sometimes he does not).
DEAR SIR
THANK YOU SO MUCH…WHENEVER I ASK ANY QUESTION IN THIS FORUM I ALWAYS GET YOUR ANSWER WITH THE EFFORT OF MAKING ME UNDERSTAND.I CAN NOT EXPLAIN YOU IN WORDS HOW HELPFUL THIS IS SINCE I DONT HAVE ANY TUTOR FOR THIS COURSE.YOU ARE A REAL GREAT MAN.THANK YOU!!!Thank you Mr Moffat. I was looking at Ruby last night. Ruby really messed me up however this morning before i was on Ask Tutor Forum, I am looking at these previous responses which have been so helpful as i had so many unanswered questions!!
Yes sir. There is this horrible formula ((100/96)^12/2-1)% as the effective cost in BPP text. There is this formula of 4/96*6*100% as the effective cost on Open Tuition-Page 24-Management of working capital. Thankfully you have answered this on Management of Receivables and Payables Example 1.
There was this deduction ($4m less $26,666) on Ruby. Thankfully you have also answered this previous postings of students.
All the above are quite a nightmare for one who is studying alone and left me spinning all the night. Thank you Mr Moffat.
Mr Moffat. This formula for ((100/96)^12/2-1)% looks like the Past Dividend growth in the Open Tuition notes Page 93. From there I can not find my way out to connect these formulas. I believe I missed an earlier knowledge.
No – the formula is nothing to do with dividend growth.
It is for calculating the effective cost of giving a discount.
If a discount of 4% is offered for payment 2 months earlier than usual, then there are two ways you can calculate the effective cost.The approximate way is to say that it is 4/96 = 4.17% every 2 months, and that therefore the yearly cost is 4.17 x 12/2 = 25.02%
However, strictly it compounds and so if R is the annual rate, then (1 + R) = 1.0417^(12/2)
This gives R = 27.78%Strictly the second way is more accurate (although on the only 2 occasions when the examiner has asked it, he has allowed either answer).
Thank you Mr Moffat for your kindness in assisting us to prepare for this exam. I now understand how to use the two formulas!
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