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Data on Trenton Travel Inc. for the most recent year are shown below, along with the...

Data on Trenton Travel Inc. for the most recent year are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year.

Sales $110,000
Days sales outstanding (DSO) 49.78
Benchmark days sales outstanding (DSO) 20

Solutions

Expert Solution

Currently:

DSO=(Accounts receivable/Sales)*365

49.78=(Accounts receivable/110,000)*365

Accounts receivable=(49.78*110,000)/365

=$15002.19(Approx)

Now:

20=(Accounts receivable/110,000)*365

Accounts receivable=(20*110,000)/365

=$6027.4(Approx)

Hence decline in AR=15002.19-6027.4

=$8974.79(Approx)

jeff jeffy answered 2 years ago
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