Question for Working capital management-Accounting?
Would anybody kindly answer the below question? I tried few hours but couldnt get there. Many thanks in advance.Q.Excelsior Ltd has sold all its produ
Would anybody kindly answer the below question? I tried few hours but couldn't get there. Many thanks in advance.
Q.Excelsior Ltd has sold all its products in the past on a cash basis. The company’s directors are considering whether to give credit to all its customers so as to increase sales. Existing sales are $500 000 per annum and it is estimated that sales will increase to $750 000 per annum if credit is offered, and that debtors will pay accounts as follows:
•For 20% - one month from time of sale
•For 30% - two months from time of sale
•For 25% - three months from time of sale
•For 20% - four months from time of sale
•For 5% - bad debts
The variable costs are 80% of sales and such costs are paid at the same time as sales are made. The company’s cost of capital is 1% per month. Advise the directors whether the company should proceed with the proposal.
or:Would anybody kindly answer the below question? I tried few hours but couldn't get there. Many thanks in advance.Q.Excelsior Ltd has sold all its products in the past on a cash basis. The company\u2019s directors are considering whether to give credit to all its customers so as to increase sales. Existing sales are $500 000 per annum and it is estimated that sales will increase to $750 000 per annum if credit is offered, and that debtors will pay accounts as follows:\u2022\tFor 20% - one month from time of sale\u2022\tFor 30% - two months from time of sale\u2022\tFor 25% - three months from time of sale\u2022\tFor 20% - four months from time of sale\u2022\tFor 5% - bad debtsThe variable costs are 80% of sales and such costs are paid at the same time as sales are made. The company\u2019s cost of capital is 1% per month. Advise the directors whether the company should proceed with the proposal.
