Question

Click here to read the eBook: The Cash Conversion Cycle RECEIVABLES INVESTMENT Leyton Lumber Company has sales of $11 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $2.75 million. Assume 365 days in year for your calculations. What is Leyton's DSO? Round your answer to two decimal places.   days What would DSO be if all customers paid on time? Round your answer to two decimal places.   days How much capital would be released if Leyton could take actions that led to on-time payments? Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. $

Answer 1

(a)-Leyton's DSO

Leyton's Days sales outstanding [DSO] = Accounts receivables / Sales per day

= $2,750,000 / [$11,000,000 / 365 Days]

= $2,750,000 / $30,136.9863 per day

= 91.25 Days

(b)-Leyton's Days sales outstanding [DSO] if all customers paid on time

Leyton's Days sales outstanding [DSO] if all customers paid on time will be the normal credit period allowed which is 30.00 Days

“Hence, the Leyton's Days sales outstanding will be 30.00 Days”

(c)-The total amount of capital released if Leyton could take actions that led to on-time payments

The total amount of capital released = Existing Accounts receivables – Revised value of accounts receivables

= $2,750,000 – [$30,136.9863 per day x 30 Days]

= $2,750,000 - $904,109.59

= $1,845,890.41

“The total amount of capital released will be $1,845,890.41”