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10 April, 13:58

McGriff Dog Food Company normally takes 30 days to pay for average daily credit purchases of $9,730. Its average daily sales are $10,010, and it collects accounts in 32 days. a. What is its net credit position? b-1. If the firm extends its average payment period from 30 days to 37 days (and all else remains the same), what is the firm's new net credit position? (Negative amount should be indicated by a minus sign.) b-2. Has the firm improved its cash flow?

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  1. 10 April, 14:05
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    The net credit position is - 28,420 (thus, is i na debit position)

    if the payment cycle increases to 37 days then, net credit position 40,800

    The company improve its cash flow as is now delaying the paying of the purchases for more days thus, redducing his overall cash needs per year.

    Explanation:

    The net credit position is the difference between accounts receivable and accounts payable

    Accounts receivable = average daily credit sales X average collection period receivable

    Accounts receivable: 10,010 x 32 = 320,320

    Accounts payable = average daily credit purchases X average payment period payable

    Account Payable: 9,730 x 30 = 291,900

    Accounts Receivable - Accounts Payable:

    320,320 - 291,900 = 28,420

    If the tiem period increases; then:

    A/P = 9,730 x 37 = 361,120

    position: 320,320 - 361,120 = 40,800
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