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:

Partly Conscious

A state of awareness in which an individual is partially aware of their surroundings and experiences.

Libido

In psychoanalytic theory, libido refers to sexual desire or the driving force behind all human behavior according to Freud.

Repression

In psychology, a defense mechanism where unpleasant thoughts, memories, or desires are pushed out of conscious awareness.

Sublimation

A defense mechanism where socially unacceptable impulses or idealizations are transformed into socially acceptable actions or behavior.