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    EX 7

    Uploaded by

    Nguyễn Mai Anh
    btap

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    © All Rights Reserved
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    EX 7

    Uploaded by

    Nguyễn Mai Anh
    4 views2 pages
    btap

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    © © All Rights Reserved

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    btap

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    4 views2 pages

    EX 7

    Uploaded by

    Nguyễn Mai Anh
    btap

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    1. Ruth Company currently has $1,000,000 in accounts receivable.

    Its day's sales outstanding (DSO) is 50 days


    (based on a 365-day year). Assume a 365-day year. The company wants to reduce its DSO to the industry
    average of 32 days by pressuring more of its customers to pay their bills on time. The company's CFO
    estimates that if this policy is adopted the company's average sales will fall by 10 percent. Assuming that
    the company adopts this change and succeeds in reducing its DSO to 32 days and does lose 10 percent of its
    sales, what will be the level of accounts receivable following the change?

    a. $576,000
    b. $676,667
    c. $776,000
    d. $900,000
    e. $976,667

    2. Collins Company had the following partial balance sheet and complete annual income statement:

    Partial Balance Sheet:


    Cash $ 20
    A/R 1,000
    Inventories 2,000
    Total current assets $ 3,020
    Net fixed assets 2,980
    Total assets $ 6,000

    Income Statement:
    Sales $10,000
    Cost of goods sold 9,200
    EBIT $ 800
    Interest (10%) 400
    EBT $ 400
    Taxes (40%) 160
    Net Income $ 240

    The industry average DSO is 30 (based on a 365-day year). Collins plans to change its credit policy so as to
    cause its DSO to equal the industry average, and this change is expected to have no effect on either sales or
    cost of goods sold. If the cash generated from reducing receivables is used to retire debt (which was
    outstanding all last year and which has a 10 percent interest rate), what will Collins' debt ratio (Total
    debt/Total assets) be after the change in DSO is reflected in the balance sheet?

    a. 33.33%
    b. 45.28%
    c. 52.75%
    d. 60.00%
    e. 65.71%
    3. Taft Technologies has the following relationships:

    Annual sales $1,200,000


    Current liabilities $ 375,000
    Days sales outstanding (DSO) (365-day year) 40
    Inventory Turnover ratio 4.8
    Current ratio 1.2

    The company’s current assets consist of cash, inventories, and accounts receivable. How much cash does
    Taft have on its balance sheet?

    a. -$ 8,333
    b. $ 68,493
    c. $125,000
    d. $200,000
    e. $316,667

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