Current Asset Management 9

Current Asset Management 9 - which is financed by a bank...

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Old Exam Questions - Current Asset Management Page 9 of 12 Pages E. $119,700 and $7,020 18. Assume that your company has sales (all on credit) of $1,000,000 a day on a 360-day basis year. On average, the company has an account receivable turnover of 6, an inventory turnover of 12, and a payables deferral period of 10 days. The company is looking for ways to shorten its cash conversion cycle (calculated on a 360-day basis). The CFO has proposed new policies that would result in a 30 percent reduction in both average inventories and accounts receivables outstanding, and a lengthening of the payables deferral period to 30 days. The company anticipates that these policies will also reduce sales to $975,000 per day. Given this information, determine by how many days these changes will shorten the company's cash conversion cycle. A. 45.38 days B. 36.32 days C. 29.74 days D. 21.49 days E. 15.65 days 19. Assume that your firm has an average accounts receivable balance of $2,320,000,
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Unformatted text preview: which is financed by a bank loan at a 6 percent annual interest rate. A large bank has approached you about setting up a nation-wide system of lock boxes which should help you to speed up collections and lower your average accounts receivable balances by 25 percent. Assuming a tax rate of 40 percent, determine how much you should be willing to pay (this would be considered an operating expense) for this system on an annual basis. A. $41,760.00 B. $37,580.00 C. $34,800.00 D. $48,720.00 E. $44,640.00 20. Your company is contemplating a change in its accounts receivable policy. Its current income statement (Year 0) is below: Income Statement Year 0 Year 1 Sales $730,000.00 Variable Costs -$584,000.00 Gross Profit $146,000.00 Fixed Costs -$46,000.00 Bad Debt Expense: Original -$14,600.00 New --- EBIT $85,400.00 Interest: Original -$15,400.00 New --- EBT $70,000.00 Taxes (40%) -$28,000.00...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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