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Master, Inc. currently has $10,000,000 in accounts receivable. It has day sales outstanding of 60 days....

Master, Inc. currently has $10,000,000 in accounts receivable. It has day sales outstanding of 60 days. Assume a 360-day year. The company wants to reduce its DSO to the industry average of 30 days by pressuring more of its customers to pay their bills on time. The company's CFO estimates that if this policy is adopted the company's average sales will fall by 20 percent. Assuming that the company adopts this change, succeeds in reducing its DSO to 30 days, and does lose 20 percent of its sales, what will be the level of accounts receivable following the change?

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Answer #1

Answer: 4,000,000

Explanation:

= Current account receivable/ current DSO X reduced DSO X ( 1- % of reduction in sales)

= 10,000,000/60 x 30 x (1-0.20)

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