Junior equuity analyst

Water Cooler Careers
#1

The company is considering two different approaches to receivables management: Period of credit allowed – days of receivables Yearly revenue 10 | 7000 20 | 15000

In both cases the company’s gross margin is expected at 12%, and the cost of debt necessary to finance receivables is 13%. what’s the difference (in terms of profit before tax) between the two choices?

#2

Avg. receivables is 192 (7000*10/365) in the 1st scenario and 821 in the 2nd scenario. Annual interest expense is = receivables * cost of financing.

Sale 7000 15000 GP 840 1800 Interest 25 107 PBT 815 1693

#3

Thank you SO MUCH!!!