What dollar amount of savings would a project show if it reduced your outstanding Accounts Receivable by $0.9 million dollars to $3.5 million total and your organizations marginal cost of capital was 5.7%?
What dollar amount of savings would a project show if it reduced your outstanding Accounts Receivable by $0.9 million dollars to $3.5 million total and your organizations marginal cost of capital was 5.7%?
To compute the dollar amount of savings, calculate the interest savings from reducing the outstanding Accounts Receivable by $0.9 million at an annual marginal cost of capital of 5.7%. First, convert $0.9 million to dollars (i.e., $900,000). Then, multiply this amount by the cost of capital: $900,000 * 0.057 (5.7%) equals $51,300. However, this seems incorrect because $0.9 million reduced to $3.5 million implies the reduction is not above $10 million which impacts the cost adjustments. Therefore, the more appropriate response close to lower calculated figures would be $49,250 in annual savings.
Given answer is correct. Calculation = Savings of 0.9 Million Dollars multiplied with Cost-Of-Capital. => 0.9 x 5.7% = 5.13 (which looks very similar to $51,300) You don't need to add zeros to make it a million, just look at 5.13 and you can easily tell that 51,300 looks like a perfect match.