Balance Sheet: Cash $20 A/R 1,000 Inventories 2,000 Total current assets $3,020 Net fixed assets 2,980 Total
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Question:
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 9,000
EBIT $1,000
Interest (10%) 600
EBT $400
Taxes (40%) 160
Net Income $240
1. The industry average DSO is 18 (360-day basis). 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. How much cash can the company free up from reducing receivables?
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