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Unformatted text preview: figures for accounts receivable, notes payable, and retained earnings be at the end of one year if notes payable are used to finance the investment in receivables? Assume that the cost of carrying receivables had been deducted when the 25 percent profit margin was calculated. Answer: Although the firm has $182,466 in receivables, the entire amount does not have to be financed, since 25 percent of the sales price is profit. This means that 75 percent of the price represents costs of materials, labor, rent, utilities, insurance, and so on. Thus, the firm must finance only 0.75($182,466) = $136,849 of the receivables balance. Disregarding other assets and liabilities, its balance sheet would look like this if notes payable are used to finance receivables: Accounts receivable $182,466 Notes payable $136,849 Retained earnings 45,616 $182,466 Mini Case: 27- 18 b. 5. If bank loans have a cost of 12 percent, what is the annual dollar cost of carrying the receivables?...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08