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Hi Everyone
Anyone has tried to do this question before. part b) it is challenging. I do understand the following (please see questions mark)
Part of answer “b”
Reduction in accounts receivable days
Current accounts receivable days = (8,775/49,275) x 365 = 65 days
Reduction in days over six months = 65 – 53 = 12 days (
Monthly reduction = 12/6 = 2 days ( I do not understand)??????????
Each receivables day is equivalent to 8,775,000/65 =$135,000
(Alternatively, each receivables day is equivalent to 49,275,000/365 =$135,000)
Monthly reduction in accounts receivable = 2 x 135,000 = $270,000Overdraft interest calculations
Monthly overdraft interest rate = (1·0617)^1/12 = 1·005 or 0·5% ( I do not understand)??????????Thanks in advance for your response
If you reduce by 12 days over six months on average you reduce by 2 days a month it says in the question that “This reduction would take six months to achieve from the current date, with an equal reduction in each month.”
Your second question is just the conversion of an effective interest rate for one length of time (a year) it to an effective interest rate for a different length of time (a month).
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