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Current Asset Management Solutions 15

# Current Asset Management Solutions 15 - = \$119,700 Quantity...

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Old Exam Questions - Current Asset Management - Solutions Page 15 of 21 Pages (12 orders per year). You should now be able to determine whether it is in the firm's best interest to take the discount. Now assume that the firm has decided to carry, on a permanent basis, 2,000 units of safety stock. Determine the net amount that the firm will save if it takes the quantity discount and the total inventory costs that will be incurred if the firm both takes the quantity discount and carries safety stocks of 2,000 units. A. \$125,500 and \$6,890 B. \$125,500 and \$7,020 C. \$127,550 and \$6,740 D. \$119,700 and \$6,890 * E. \$119,700 and \$7,020 Original TIC = (15,000/2)(\$4)(.10) + (\$150)(20) Original TIC = \$3,000 + \$3,000 = \$6,000 Quantity Discount : New TIC = (25,000/2)(\$3.60)(.10) + (\$150)(12) New TIC = \$4,500 + \$1,800 = \$6,300 Increase in TIC = \$6,300 - \$6,000 = \$300 Savings on Discounts = (300,000)(\$0.40) = \$120,000 Net Savings = \$120,000 - \$300
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Unformatted text preview: = \$119,700 Quantity Discount and Safety Stocks : Average Inventory = (25,000/2) + 2,000 = 14,500 units New TIC = (14,500)(\$3.60)(.10) + (\$150)(12) New TIC = \$5,220 + \$1,800 = \$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....
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