Hasbro designs, manufactures, and markets toys and games for children and adults in the United States and in international markets. Hasbro’s portfolio of brands and products contains some of the most well-known toys and games under famous brands such as Playskool, Tonka Trucks, Milton Bradley, and Parker Brothers and includes such classic games as Scrabble®, Monopoly, and Clue®. Sales during 2008 totaled $4,022 million. Accounts receivable totaled $655 million at the beginning of 2008 and $612 million at the end of 2008.

Required

a. Use the average balance to compute the accounts receivable turnover ratio for Hasbro for 2008.

b. Hasbro generated a compound annual sales growth rate of 13.0 percent over the past two years. Assume that Hasbro’s sales will continue to grow at that rate each year for Year +1 through Year +5 and that the accounts receivable turnover ratio each year will equal the ratio computed in Part a for 2008. Project the amount of accounts receivable at year-end through Year +5 based on the accounts receivable turnover computed in Part a. Also compute the percentage change in accounts receivable between each of the year-ends through Year +5.

c. Does the pattern of growth in your projections of Hasbro’s accounts receivable seem reasonable considering the assumptions of smooth growth in sales and steady turnover? Explain.

d. The changes in accounts receivable computed in Part b display the sawtooth pattern depicted in Exhibit 10.5. Smooth the changes in accounts receivable by computing the year-end accounts receivable balances for Year +1 through Year +5 using the compound annual growth rate in accounts receivable between the end of 2008 and the end of Year +1 from Part b.

e. Smooth the changes in accounts receivable using the compound annual growth rate in accounts receivable between the end of 2008 and the end of Year +4 from Part b.

Apply this growth rate to compute accounts receivable at the end of Year +1 through Year +5. Why do the amounts for ending accounts receivable using the growth rate from Part d differ from those using the growth rate from this part?

f. Compute the accounts receivable turnover for 2008 by dividing sales by the balance in accounts receivable at the end of 2008 (instead of using average accounts receivable as in Part a). Use this accounts receivable turnover ratio to compute the projected balance in accounts receivable at the end of Year +1 through Year +5. Also compute the percentage change in accounts receivable between the year-ends for Year +1 through Year +5.