ABC's maintenance service business grosses some $22M per year before discounts and its average days receivable is 30. If 15% of its clients opt to follow the new policy, what will be the change in receivables? If ABC's WACC is 7.0%, what are the projected savings of the new policy? If its gross margin is 22%, by how much will gross dollar revenues have to rise to offset the loss from discounts? In percent?

 

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2 3 Gross revenue 4 Avg. receivables before new policy 5 % paying early 6 Avg. receivables after new policy 7 Change in receivables 8 Cost of capital 9 Projected savings in capital costs 10 minus: discounts 11 Projected savings net of discounts 12 Gross margin 13 Gross revenues must rise by: 14 - in dollars 15 - in percent 16 2 3 Gross revenue 4 Avg. receivables before new policy 5 % paying early 6 Avg. receivables after new policy 7 Change in receivables 8 Cost of capital 9 Projected savings in capital costs 10 minus: discounts 11 Projected savings net of discounts 12 Gross margin 13 Gross revenues must rise by: 14 - in dollars 15 - in percent 16

Answer rating: 100% (QA)

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