Reston Inc

question 151

Multiple Choice

Reston Inc.has expected sales of $17,000,000.While 10 percent of its customers pay cash,the remaining 90 percent pay on credit with 40 percent paying on Day 10,30 percent paying on Day 20,15 percent paying on Day 25,and 15 percent paying on Day 30.Assume that the cost of funds invested in receivables is 10 percent.Suppose that the firm's customers begin paying later,such that the new DSO increases to 24 days,that the firm uses a 360-day year,and that the firm's variable cost ratio is 80 percent.What is the additional interest cost to Reston of the additional investment in A/R caused by the delay in payment by its customers?

• A) $19,550
• B) $24,438
• C) $42,500
• D) $78,625
• E) $102,000

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Definitions:

Passenger Ship

A large vessel designed to carry people across water, often equipped with various amenities for comfort and entertainment.

Disaster

A sudden event, such as an accident or a natural catastrophe, that causes great damage or loss of life.

Titanic

A British passenger liner that sank in the North Atlantic Ocean in 1912 after hitting an iceberg, leading to significant loss of life.

Ocean Floor

The bottom surface of the Earth's oceans, consisting of various geographical features like plains, mountains, and trenches, providing habitat for diverse marine life.