Evaluation of average collection period

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Reference no: EM1313067

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

200,000

Net fixed assets

500,000

Stockholder's equity

1,000,000

Total assets

2,300,000

Total Liabilities and equity

2,300,000

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?

Reference no: EM1313067

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