Description
Chapter 15: P1
1 Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40 days of credit on its purchases from suppliers.
- Estimate the average length of the firm's short-term operating cycle. How often would the cycle turn over in a year?
- Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?
Chapter 16: P1
1 A supplier is offering
your firm a cash discount of 2 percent if purchases are paid for within ten
days; otherwise, the bill is due at the end of 60 days. Would you recommend
borrowing from a bank at an 18 percent annual interest rate to take advantage
of the cash discount offer? Explain your answer.
Explanation & Answer
Attached.
FIN 100
o
The cash conversion cycle time equals the time it takes to sell finished
goods plus number of days taken to collect payment from sales, less the
time taken for the seller to pay on supplier debts. The formula is:
Cash Conversion Cycle (CCC) = 15+35-40
= 10 days
The operating cycle starts with raw material and continues through the
realization of sales. The complete operating cycle would therefore be:
Oper...
Review
Review
