Question

Mattam Corporation’s year sales are $5 million and its average collection period is 32 days. Only 10 percent of sales are for cash and the remainders are credit sales.
a. What is Mattam’s investment in accounts receivable?
b. If Mattam extends its credit period, it estimates the average collection period will rise to 40 days and that credit sales will increase by 20 percent from current levels. What is the expected increase in Mattam’s accounts receivable balance if it extends its credit period?
c. If Mattam’s net profit margin is 12 percent, the expected increase in bad debt expense is 10 percent of the new sales, and the cost of financing the increase in receivables is 18 percent, should Mattam extend the credit period?


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  • CreatedMarch 27, 2015
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