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ch15pp - CHAPTER 15 WORKING CAPITAL MANAGEMENT Inventory...

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Chapter 15: Working Capital Management Inventory conversion period 1. Kleck Corporation has $500,000 of inventory, and its annual sales are $3,000,000. Based on a 365 day year, what is Kleck's inventory conversion period? IC = INV/AVG. DAILY COGS = 500,000/(3,000,000/365) = 61 DAYS Payables deferral period 2. Plummer Products purchases $3,750,000 of materials each year, and it has an average accounts payable balance of $350,000. Assuming there are 365 days per year, what is Plummer’s payables deferral period? PD = AP/AVG. DAILY COGS = 350,000/(3,750,000/365) = 34 DAYS Cash conversion cycle 3. Ashwell Corp has $1,600,000 of sales, $200,000 of inventories, $150,000 of receivables, and $100,000 of payables. Its cost of goods sold is 70% of sales. What is Ashwell’s cash conversion cycle (CCC)? CCC = (INV/AVG. DAILY COGS) + (AR/AVG. DAILY SALES) – (AP/AVG. DAILY COGS). CCC = 200,000/(1,120,000/365) + 150,000/(1,600,000/365) – 100,000/(1,120,00/365) = 65+34-33 = 66 DAYS Cash conversion cycle 4. Okemos Technologies' annual sales are $5,000,000, and it purchases $3,400,000 of materials each year (and this is its cost of goods sold). Okemos also has $550,000 of inventory, $525,000 of accounts receivable, and $450,000 of accounts payable.
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