349 Words2 Pages

Week 4 Case Study
Fresh &Fruity Foods Inc.
1. Average Collection Period
=Accounts Receivable/ Average daily credit sales Accounts receivable =$209,686 Average daily Credit sales =$1,179,000/360 =$3,275 Average collection Period =$209,686/$3,275 =64.02 days
2. Cost of forgoing the cash discount:
Kdis=2%/100%-2% x 360/f(67)-d(10)= .1307= 13.07%
The formula tells us that Fresh and Fruity is effectively paying 13.07% interest to delay paying the discounted amount for 57days (the 67 days on which they pay less the 10 day discount period).
3. Average Collection Period x Average Daily credit Sales= New Accounts receivable
32x 3,275=$104,800
Freed-up Cash = old accounts receivable $209,686 - new accounts receivable $104,800*…show more content…*

Accounts Payable= Average payment period x Purchases Per Day Average Payment Period= 10 days Purchases Per Day= [969,000-(.02x969,000)]/360 =[969,000-$19,380]/360 =$2,638 Accounts payable =10 x $2,638 =$26,380 Accounts payable from question 3 $75,747 Accounts payable from question 4 $26,380 Size of loan required $49,367 This is the size of the loan required to take all cash discounts in 10 days. 5. The cost is the 8 percent interest on the bank loan of $49,367 or $3,949. The gain is the cash discounts taken of $19,380. The net gain before tax is $15,431 ($19,380-$3,949). 6. First determine the amount of funds on which interest must be paid. $49,367- (.08 x $49,367)- (.20 x $49,367) =$49,367-$3,949-$9,873 =$35,545 Then divide the interest payment by this

Accounts Payable= Average payment period x Purchases Per Day Average Payment Period= 10 days Purchases Per Day= [969,000-(.02x969,000)]/360 =[969,000-$19,380]/360 =$2,638 Accounts payable =10 x $2,638 =$26,380 Accounts payable from question 3 $75,747 Accounts payable from question 4 $26,380 Size of loan required $49,367 This is the size of the loan required to take all cash discounts in 10 days. 5. The cost is the 8 percent interest on the bank loan of $49,367 or $3,949. The gain is the cash discounts taken of $19,380. The net gain before tax is $15,431 ($19,380-$3,949). 6. First determine the amount of funds on which interest must be paid. $49,367- (.08 x $49,367)- (.20 x $49,367) =$49,367-$3,949-$9,873 =$35,545 Then divide the interest payment by this

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