Evaluation of average collection period

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Reference no: EM1313067

Calculation of Average collection period over the next year.

BPC anticipates reaching a sales level of $6 million in one year. The company expects a net income during the next year to equal $400,000. Over the past several years, the company has been paying 50k in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for BPC are as follows:

BPC Balance sheet as of December 31, 2005

Cash	200,000	Accounts Payable	600,000
Accounts receivable	400,000	Notes Payable	500,000
Inventories	1,200,000	Current liabilities	1,100,000
Current assets	1,800,000	Long-term debt	200,000
Net fixed assets	500,000	Stockholder's equity	1,000,000
Total assets	2,300,000	Total Liabilities and equity	2,300,000

Suppose BPC mgmt feels the average collection period on additional sales (sales over 4 million) will be 60 days, instead of the current level. By what amount will this increase in the average collection period increase the financing needed by the company over the next year?

Reference no: EM1313067

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