Calculation of Average collection period over the next year.
BPC anticipates reaching a sales level of $6 million in one year. The company expects a net income during the next year to equal $400,000. Over the past several years, the company has been paying 50k in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for BPC are as follows:
BPC Balance sheet as of December 31, 2005
|
Cash
|
200,000
|
Accounts Payable
|
600,000
|
|
Accounts receivable
|
400,000
|
Notes Payable
|
500,000
|
|
Inventories
|
1,200,000
|
Current liabilities
|
1,100,000
|
|
Current assets
|
1,800,000
|
Long-term debt
|
200,000
|
|
Net fixed assets
|
500,000
|
Stockholder's equity
|
1,000,000
|
|
Total assets
|
2,300,000
|
Total Liabilities and equity
|
2,300,000
|
Suppose BPC mgmt feels the average collection period on additional sales (sales over 4 million) will be 60 days, instead of the current level. By what amount will this increase in the average collection period increase the financing needed by the company over the next year?