Reference no: EM133130910

Questions -

Q1. Jane James owns an appliance store. She normally receives $50,000 worth of appliances per month. She does not like to owe people money and always pays her bills on the day she receives the invoice. Someone told her that if she delayed payment, she could actually increase her profit because the money would be earning interest in her account. She went through her bills and found that she actually had an additional ten days, on average to pay her invoices. She also found that she was earning 5 percent interest on the money she had in her money market savings account.

1. If she delayed payment by ten days, how much additional interest would she earn for the year?

2. Explain how this problem represents a disbursement float.

Q2. Larry's Lawn Equipment Company gives terms of 2/10, n/30. Larry has annual credit sales of $500,000 and average accounts receivable of $60,000.

1. What is Larry's accounts receivable turnover?

2. What is Larry's average daily collection?

Q3. What is the relationship between the terms that Larry is giving and his average daily collection?

If Larry has accounts receivable of $100,000 rather than $60,000:

What is Larry's accounts receivable turnover?

What is Larry's average collection period?

What should Larry do, if anything?