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Hi sir
Q;A company has daily sales of 150K.A debt factor has guranteed to reduce the company receivables collection time by four days for a monthly fee of 2500.Cash surplus can be invest in money market deposite yield 4%/Anum??Sir your preffer way to solve this question..i solve it by supposing Current days are 10 so the revised are 6..Compare receivable of of both days then difference is multiplay by 4%.Also i consider 365 days/year..which is also not given in Question..
But unfortunately the ans is wrong..
plz suggest if possible any easy way to solve this question
Thanks..By all means assume 10 days and compare with 6 days (but the answer will be the same as just doing the difference of 4 days worth of receivables).
If the collection period is 10 days, the receivables at 10 x 150,000 = 1,500,000
If the collection period reduces to 6 days, then receivables fall to 6 x 150,000 = 900,000.So a fall in average receivables of 600,000 (which is the same as 4 days x 150,000) and therefore an interest saving of 600,000 x 4% = 24,000 per year.
The factors fee = 12 x 2,500 = 30,000 per year.
I don’t know what you were doing, but the number of days in a year is of no relevance at all for this question!
Thanks Sir fr your reply..
But Why num of days in the year is irrelevant..We calculate Avg rec by working backward on Avg days formuls..In which total num of days consider every time..
Then why not its relevant in this question..
Also How i found days relevance..
Do not simply learn formulae without understanding!
The sales are 150,000 per day. If receivables take 10 days to pay then receivables are 10 days worth of sales!!!
The number of days in the year would only be relevant if we were given the sales per year!
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