Fm22 8 - Cash 22-11 a conversion cycle Inventory Receivables Payables = conversion collection − deferral period period period = 75 38 30 = 83

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Unformatted text preview: Cash 22-11 a. conversion cycle Inventory Receivables Payables = conversion + collection − deferral period period period = 75 + 38 - 30 = 83 days. b. Average sales per day = $3,421,875/365 = $9,375. Investment in receivables = $9,375 × 38 = $356,250. c. Inventory turnover = 365/75 = 4.87×. 22-12 a. Inventory conversion period = 365/Inventory turnover ratio = 365/5 = 73 days. Receivables collection period = DSO = 36.5 days. Cash conversion cycle Inventory Receivables Payables = conversion + collection − deferral period period period = 73 + 36.5 - 40 = 69.5 days. b. Total assets = Inventory + Receivables + Fixed assets = $150,000/5 + [($150,000/365) × 36.5] + $35,000 = $30,000 + $15,000 + $35,000 = $80,000. Total assets turnover = Sales/Total assets = $150,000/$80,000 = 1.875×. ROA = Profit margin × Total assets turnover = 0.06 × 1.875 = 0.1125 = 11.25%. c. Inventory conversion period = 365/7.3 = 50 days. Cash conversion cycle = 50 + 36.5 - 40 = 46.5 days. Total assets = Inventory + Receivables + Fixed assets = $150,000/7.3 + $15,000 + $35,000 = $20,548 + $15,000 + $35,000 = $70,548. Total assets turnover = $150,000/$70,548 = 2.1262×. ROA = $9,000/$70,548 = 12.76%. Answers and Solutions: 22 - 8 ...
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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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