Answer :
To determine the average collection period of a firm, we use the following formula:
[tex]\text{Average Collection Period} = \frac{\text{Average Receivables}}{\text{Net Annual Sales}} \times 365[/tex]
In this question, the firm has net annual sales of $250,000 and average receivables of $150,000. We'll substitute these values into the formula:
[tex]\text{Average Collection Period} = \frac{150,000}{250,000} \times 365[/tex]
First, we calculate the fraction:
[tex]\frac{150,000}{250,000} = 0.6[/tex]
Next, multiply this result by 365 days to get the average collection period in days:
[tex]0.6 \times 365 = 219[/tex]
Therefore, the firm's average collection period is approximately 219.0 days.
The correct answer to the multiple-choice question is A) 219.0 days.
The average collection period is a measure of how many days, on average, it takes a firm to collect payments from its credit sales. This is important for a business as it affects cash flow and working capital management.