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FIN320 Week Individual textbook assignments

# FIN320 Week Individual textbook assignments - Week 3...

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Week 3 Individual 1 Week 3 Individual Assignment FIN/320 – Corporate Finance EXCELLENT JOB…. P13–1 Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 90 days, and accounts receivable are collected in 60 days.

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Week 3 Individual 2 Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about \$30 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365-day year. a. Calculate the firm’s operating cycle . b. Calculate the firm’s cash conversion cycle . c. Calculate the amount of resources needed to support the firm’s cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle a: OC=AAI+ACP OC=90+60 OC= 150 days b: CCC=OC-APP CCC=150-30 CCC= 120 days c: Inventory = (\$30,000,000) x (90/365) = \$7,397,260 + Accounts Receivable = (\$30,000,000 x 60/365) = \$4,931,506 - Accounts Payable = (\$30,000,000) x (30/365) = \$2,465,753 = Resources Invested = \$9,863,013 d: Management might be able to reduce the cash conversion cycle by reducing the amount of resources being invested into it. This could be the result of reducing the average collection period by 1 week’s time. Example: (\$30,000,000 x 53/365) = \$4,356,164 a reduction of \$575,342 in resources tied up in the CCC. Management could also reduce the CCC by increasing the average payment period by 5 days, allowing more cash to remain with the company. Example: (\$30,000,000)x(35/365) = \$2,876,712 a reduction of \$129,041 tied up in the CCC. P13–7 Accounts receivable changes without bad debts Tara’s Textiles currently has credit sales of \$360 million per year and an average collection period of 60 days. Assume that the price of Tara’s products is \$60 per unit and
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