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hi on this question of MCQ from pilot paper
The management of XYZ Co has annual credit sales of $20 million and accounts receivable of $4 million. Working
capital is financed by an overdraft at 12% interest per year. Assume 365 days in a year.
What is the annual finance cost saving if the management reduces the collection period to 60 days?The Examiners answer is Finance cost saving = 13/365 x $20m x 0·12 = $85,479
where is the 13 coming from ?
Receivables are currently taking 4/20 x 365 = 73 days.
If it is reduced to 60 days, then they are collecting 73 – 60 = 13 days earlier.
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