Reference no: EM133178884

Question 1 - Currently, ABC Company has annual sales of P2,500,000. Its average collection period is 45 days, and bad debts are 3 percent of sales. The credit and collection manager is considering instituting a stricter collection policy, whereby bad debts would be reduced to 1.5 percent of total sales, and the average collection period would fall to 30 days. However, sales would also fall by an estimated P300,000 annually. Variable costs are 75 percent of sales and the cost of carrying receivables is 10 percent. Assume a tax rate of 40 percent and 360 days per year. What would be the decrease in investment in receivables if the change were made?

Question 2 - Based on the data taken from the balance sheet of ABC Company at the end of the current year:

Accounts payable P145,000

Accounts receivable 110,000

Accrued liabilities 4,000

Cash 80,000

Income tax payable 10,000

Inventory 140,000

Marketable securities 250,000

Notes payable, short-term 85,000

Prepaid expenses 15,000

What the company's current ratio as of the balance sheet date?