What approximate value should a firm put on being able to permanently reduce the length of its collection period by 1 day if annual sales (all on credit)are $5,000,000 and the appropriate opportunity cost is 10% annually?
A) $1,370
B) $15,068
C) $13,700
D) $50,000

Question

Quizplus · Accepted Answer

We can calculate the value of a one-day reduction in the collection period as follows:

Value = (1/365) * Annual Sales * (Opportunity Cost Rate)
Value = (1/365) * $5,000,000 * 0.10
Value = $1,369.86

Therefore, the approximate value that the firm should put on being able to permanently reduce the length of its collection period by 1 day is $1,370. The closest option is C.

What Approximate Value Should a Firm Put on Being Able