Module 6 work

# Module 6 work - period of 45 days and an average payment...

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Unformatted text preview: period of 45 days and an average payment period of 30 days. The firm’s annual sales ar Assume there is no difference in the investment per dollar of sales in inventory, receivable and the amount of resources needed to support its cash conversion cycle. AAI = 365 days in a year inventory turn over 6 times = 61 OC = AAI + ACP = = 106 CCC = OC - APP = 106 days - 30 days = 76 Daily Financing = \$3,000,000 / 365 = \$8,219.18 Resources needed = Daily financing ´ CCC = \$8,219 * 76 = \$624,644.00 if it makes the following changes simultaneously. (1) Shortens the average age of inventory by 5 days. (2) Speeds the collection of accounts receivable by an average of 10 days. (3) Extends the average payment period by 10 days. OC = 55 days + 35 days = 90 CCC = 90 days - 40 days = 50 Resources needed = \$8,219 * 50 = \$410,950.00 could it increase its annual profit as a result of the changes in part b? Additional profit = (Daily expenditure ´ reduction in CCC)*financing rate P14-3 Multiple changes in cash conversion cycle Garrett Industries turns over its invento A . Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, 61 days + 45 days B. Find the firm’s cash conversion cycle and resource investment requirement C. If the firm pays 13% for its resource investment, by how much, if anything, = (\$8,219 * 25) * 0.13 = 205475 Additional profit = \$26,711.75 you recommend to the firm? Why? I would recommend not using the suggesteded techinque because the costs is (\$35,000 D. If the annual cost of achieving the profit in part c is \$35,000, what action would re \$3 million. les, and payables; and a 365-day year. Formaula's APP ACP AAI OC 30 45 days of year/ turn over AAI +ACP Given in question Given in question Pg(685 in book) Pg(685 in book) ory 6 times each year; it has an average collection * Formuals are placed in the soultion not in the work. i.e. for the AAI answer if you click on the ) which exceed's the savings (\$26,712).) which exceed's the savings (\$26,712)....
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## This note was uploaded on 04/22/2011 for the course FIN & ACC 504 & 502 taught by Professor Harper&tai during the Spring '11 term at Grand Canyon.

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Module 6 work - period of 45 days and an average payment...

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