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    Question about Trade Credit and Receivables

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    Trade Credit and Receivables. A firm offers terms of 2/15, net 30. Currently, two-thirds of all customers take advantage of the trade discount; the remainder pay bills at the due date.

    a. What will be the firm's typical value for its accounts receivable period?

    b. What is the average investment in accounts receivable if annual sales are $20 million?

    c. What would likely happen to the firm's accounts receivable period if it changed its terms to 3/15, net 30?

    Problem is attached as a Word Doc. You Must show your work and include all Formulas used.

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    a. What will be the firm's typical value for its accounts receivable period?

    Currently two-thirds of all customers take advantage of the trade discount. This means that they pay on day 15

    Currently one -thirds of all customers do not take advantage of the trade discount. This means that they pay on day 30

    Value for Accounts Receivable period:

    15 days x 2/3 = 10 days

    30 days x 1/3 = 10 days

    Total =10 + 10 = 20 days

    Answer: 20 days

    b. What is the average investment in accounts receivable if annual sales are ...

    Solution Summary

    Solution calculates the firm's typical value for its accounts receivable period and the average investment in accounts receivable.

    $2.19

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