Exman Company performed a study of its billing and collection procedures and found that an average of 8 days elapses

Exman Company performed a study of its billing and collection procedures and found that an average of 8 days elapses between the time when a customer’s payment is received and when the funds become usable by the firm. The firm’s annual sales are $540 million.

a. Assuming that Exman could reduce the time required to process customer payments by 1.5 days, determine the increase in the firm’s average cash balance.

b. Assuming that these additional funds could be used to reduce the firm’s outstanding bank loans (current interest rate is 8 percent) by an equivalent amount, determine the annual pretax savings in interest expenses.


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Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards.

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Pretty Lady Cosmetic Products has an average productions process time of forty days

Pretty Lady Cosmetic Products has an average productions process time of forty days. Finished goods are kept on hand for an average of fifteen days before they are sold. Accounts receivable are outstanding an average of thirty-five days, and the firm receives forty days of credit on its purchases from supplies.

a. Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn over in a year?
b. Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?

Click here for the solution: Pretty Lady Cosmetic Products has an average productions process time of forty days