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CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling

A company's forecast sales next year are 800. Its model assumes receivable days of 45 on a 365-day year using year-end receivables. Opening receivables were 80. The change in receivables included in forecast operating cash flow is closest to:

Ending receivables are about 98.6 (800 × 45/365), up roughly 18.6 from 80. A rise in receivables uses cash, so it is an outflow, and of the choices, an outflow of 17 is closest. An inflow would reflect the wrong sign.

  1. Aan outflow of 17Correct
  2. Ban outflow of 25
  3. Can inflow of 17

Explanation

Ending receivables = 800 × 45/365 = 98.6. The increase over opening 80 is 18.6, which is closest to 17? Check: 98.6 − 80 = 18.6, so the closest option is an outflow of 17 versus 25; 18.6 is nearer to 17. An increase in receivables reduces operating cash flow, so it is an outflow. The inflow option has the wrong sign.

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