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Calculation of Average collection period over the next year.
BPC anticipates reaching a sales level of $6 million in one year. The company expects a net income during the next year to equal $400,000. Over the past several years, the company has been paying 50k in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for BPC are as follows:
BPC Balance sheet as of December 31, 2005
Cash
200,000
Accounts Payable
600,000
Accounts receivable
400,000
Notes Payable
500,000
Inventories
1,200,000
Current liabilities
1,100,000
Current assets
1,800,000
Long-term debt
Net fixed assets
Stockholder's equity
1,000,000
Total assets
2,300,000
Total Liabilities and equity
Suppose BPC mgmt feels the average collection period on additional sales (sales over 4 million) will be 60 days, instead of the current level. By what amount will this increase in the average collection period increase the financing needed by the company over the next year?
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