FM27 19 - sales but so does the firm's credit policy The days sales outstanding depends mainly on credit policy although poor economic conditions

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Mini Case: 27 - 19 Answer: Cost of carrying receivables = 0.12($136,849) = $16,422. In addition, there is an opportunity cost associated with not having the use of the profit component of the receivables. c. What are some factors that influence (1) a firm's receivables level and (2) the dollar cost of carrying receivables? Answer: 1. As shown in question B.3. Above, receivables are a function of the average daily sales and the days sales outstanding. Exogenous economic factors such as the state of the economy and competition within the industry affect average daily
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Unformatted text preview: sales, but so does the firm's credit policy. The days sales outstanding depends mainly on credit policy, although poor economic conditions can lead to a reduction in customers' ability to make payments. 2. For a given level of receivables, the lower the profit margin, the higher the cost of carrying receivables , because the greater the portion of each sales dollar that must actually be financed. Similarly, the higher the cost of the financing, the higher the 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.

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