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    Calculate effect of changes to credit policy

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    My management team is concerned with our company's credit policy being too lax and wants to tighten it up. We want to enforce a stronger credit policy and lower our DSO to 25 days. We expect to lose some credit sales because of the stronger policy and believe annual sales will decline by 5%. Can someone tell me how much will our accounts recivable decrease by as a result of our new policy?

    We have $2,000,000 in accounts receivable, which accounts for half of our current assets and our current DSO is 38 days. We have $6,000,000 in net fixed assets.

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    Solution Preview

    DSO = accounts receivable / (sales / 365)
    38 days = $2,000,000 / (sales / 365)
    38 sales / 365 = $2,000,000
    38 ...

    Solution Summary

    The expert calculates the effect of changes to credit policy. The current DSO is examined.