Current Asset Management Solutions 12

Current Asset Management Solutions 12 - $4,000,000 and...

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Old Exam Questions - Current Asset Management - Solutions Page 12 of 21 Pages D. 10.4 days * E. 15.2 days Annual sales = (12)($2,000,000) = $24,000,000 Inventory = (0.5)($2,000,000) = $1,000,000 ICP = 365 / ($24,000,000 / $1,000,000) = 365 / 24 = 15.2 days 15. Assume that your company has annual sales of $80,000,000; keeps average inventory of $20,000,000; and, on average, has accounts receivable of $16,000,000. The firm buys all raw materials on credit, its trade credit terms are net 35 days, and it pays on time. The firm’s managers are searching for ways to shorten the cash conversion cycle. Determine what the net change in the cash conversion cycle will be, using a 365-day year, if sales can be maintained at existing levels but inventory can be lowered by
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Unformatted text preview: $4,000,000 and accounts receivable lowered by $2,000,000. A. 15 days longer B. 27 days longer C. no change * D. 27 days shorter E. 15 days shorter Old : ICP = 365 / ($80,000,000 / $20,000,000) = 91.25 RCP = DSO = $16,000,000 / ($80,000,000 / 365) = 73.00 PDP = 35.00 CCC = 91.25 + 73.00 - 35.00 = 129.25 days New : ICP = 365 / ($80,000,000 / $16,000,000) = 73.00 RCP = DSO = $14,000,000 / ($80,000,000 / 365) = 63.875 PDP = 35.00 CCC = 73.00 + 63.875 - 35.00 = 101.875 days Change in CCC = 101.875 - 129.25 = - 27.375 days = 27 days shorter 16. You are given the following information concerning your company: Income Statement Year 0 Year 1...
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