Data on Mertz Co. for the most recent year are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks. The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average. If this were done, by how much would payables increase? Use a 365-day year.
$\begin{array}{lr}
\text { Cost of goods sold }= & \$ 75,000 \
\text { Payables }= & \$ 5,000 \
\text { Payables deferral period (PDP) }= & 24.33 \
\text {Benchmark pavables deferral period }= & 30.00
\end{array}$

Question

Data on Mertz Co. for the most recent year are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks. The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average. If this were done, by how much would payables increase? Use a 365-day year.
 $\begin{array}{lr}
\text { Cost of goods sold }= & \$ 75,000 \
\text { Payables  }= & \$ 5,000 \
\text { Payables deferral period (PDP) }= & 24.33 \
\text {Benchmark pavables deferral period }= & 30.00
\end{array}$

Quizplus · Accepted Answer

$\begin{array}{lllll}
&\text { Original }&\text { Benchmark }&&\text { Payables at } \
&\text {Data}& \text {Related PDP}&  \text {PDP}&\text {Benchmark Level}\
\text { Cost of goods sold } & \$ 75,000 \
\text { Inventory and PDP } & \$ 5,000 &24.33&30.00\
\text { New payables }=\mathrm{PDP} \times &&&&\$ 6164\
\text { Increase in payables = New Payables - Original Payables =} &&&\$ 1,164\
(\text { Alternative solution: }\
\text { (Change in } \mathrm{PDP} / \text { Original } \mathrm{PDP}) \times \text { Orig. Payables }=&&&\$ 1,164
\end{array}$

Data on Mertz Co A) $764 B) $849 C) $943 D) $1,048 E) $1,164

Data on Mertz Co A) $764
B) $849
C) $943
D) $1,048
E) $1,164