What is the firm''s average investment in accounts

What is the firm''s average investment in accounts receivable

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Reference no: EM131290095

Melton Electronics currently has an average collection period of 35 days and annual sales of $72 million. Assume a 365-day year.

a. What is the firm's average accounts receivable balance?

b. If the variable cost of each product is 70 percent of sales, what is the firm's average investment in accounts receivable?

c. If the equal-risk opportunity cost of the investment in accounts receivable is 16 percent, what is the total annual cost of the resources invested in accounts receivable?

d. If the firm can shorten the average collection period to 30 days by offering a cash discount of 1 percent for early payment, and 60 percent of the customers take this discount, should the firm offer this discount assuming its cost of bad debts will rise by $150,000 per year?

Reference no: EM131290095

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