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Unformatted text preview: re short-term, interest-earning, money market
instruments used by the firm to earn a return on
temporarily idle funds. They may be government or
nongovernment issues. (Solutions in Appendix B) LG2 ST 14–1 Cash conversion cycle Hurkin Manufacturing Company pays accounts payable
on the tenth day after purchase. The average collection period is 30 days, and
the average age of inventory is 40 days. The firm currently spends about $18
million on operating-cycle investments. The firm is considering a plan that
would stretch its accounts payable by 20 days. If the firm pays 12% per year for
its resource investment, what annual savings can it realize by this plan? Assume
no discount for early payment of accounts payable and a 360-day year. LG3 ST 14–2 EOQ analysis Thompson Paint Company uses 60,000 gallons of pigment per
year. The cost of ordering pigment is $200 per order, and the cost of carrying
the pigment in inventory is $1 per gallon per year. The firm uses pigment at a
constant rate every day throughout the year.
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