Question 1

Pickle Inc.had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days.What was its average receivables balance, based on a 365-day year?
A)$335,616
B)$352,397
C)$370,017
D)$388,518
E)$407,944

Accepted Answer

Average receivables balance = (Credit sales * DSO) / 365 days= (3,500,000 * 35) / 365= $335,616

Question 2

Whittington Inc.has the following data. What is the firm's cash conversion cycle?
A)31 days
B)34 days
C)37 days
D)41 days
E)45 days

Accepted Answer

The answer of Whittington Inc.has the following data. What is...

Question 3

consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate.As one part of your analysis, you want to determine the firm's cash conversion cycle.Using the following information and a 365-day year, what is the firm's present cash conversion cycle?
A)120.6 days
B)126.9 days
C)133.6 days
D)140.6 days
E)148.0 days

Accepted Answer

The answer of consulting firm was recently hired to improve...

Question 4

Singal Inc.is preparing its cash budget.It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March.If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?
A)$24,057
B)$26,730
C)$29,700
D)$33,000
E)$36,300

Accepted Answer

The answer of Singal Inc.is preparing its cash budget.It expects...

Question 5

firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times.Using a 365-day year, what is its inventory conversion period?
A)11.7 days
B)13.0 days
C)14.4 days
D)15.2 days
E)16.7 days

Accepted Answer

The answer of firm's cost of goods sold (COGS) average...

Question 6

Zervos Inc.had the following data for 2008 The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000.Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold.If these changes were made, by how many days would the cash conversion cycle be lowered?
A)34.0
B)37.4
C)41.2
D)45.3
E)49.8

Accepted Answer

The cash conversion cycle is calculated as the inventory conversion period plus the receivables collection period minus the payables deferral period. Reducing inventory and receivables decreases the cycle, while increasing payables also decreases it. The net effect of these changes results in a reduction of 34 days in the cash conversion cycle.

Question 7

firm buys on terms of 3/15, net 45.It does not take the discount, and it generally pays after 60 days.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
A)25.09%
B)27.59%
C)30.35%
D)33.39%
E)36.73%

Accepted Answer

The correct answer is A because the nominal annual percentage cost of non-free trade credit is calculated as (365 / (45 - 60)) * 3% = 25.09%.

Question 8

Edison Inc.has annual sales of $36,500,000, or $100,000 a day on a 365-day basis.The firm's cost of goods sold is 75% of sales.On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable.The firm is looking for ways to shorten its cash conversion cycle.Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable.She also anticipates that these policies would reduce sales by 10%, while the payables deferral period would remain unchanged at 35 days.What effect would these policies have on the company's cash conversion cycle? Round to the nearest whole day.
A)-26 days
B)-22 days
C)-18 days
D)-14 days
E)-11 days

Accepted Answer

First, we need to calculate the current cash conversion cycle:

Cash conversion cycle = DIO + DSO - DPO

where DIO is days inventory outstanding, DSO is days sales outstanding, and DPO is days payable outstanding.

DIO = (average inventory / cost of goods sold) * 365 = (9,000,000 / (0.75 * 36,500,000)) * 365 = 33 days
DSO = (accounts receivable / sales) * 365 = (8,000,000 / 36,500,000) * 365 = 80 days
DPO = 35 days (given)

Cash conversion cycle = 33 + 80 - 35 = 78 days

Next, we need to calculate the new values for DIO and DSO after the proposed policies are implemented:

New DIO = 0.8 * 33 = 26.4 days
New DSO = 0.8 * 80 = 64 days

We also know that sales will decrease by 10%, which means the new sales will be:

New sales = 0.9 * 36,500,000 = 32,850,000

Finally, we can calculate the new cash conversion cycle:

New DPO = 35 days (unchanged)
New cash conversion cycle = New DIO + New DSO - New DPO
= 26.4 + 64 - 35
= 55.4 days

The reduction in the cash conversion cycle is:

78 - 55.4 = 22.6 or approximately 23 days, which rounds to -22 days.

Therefore, the answer is B) -22 days.

Question 9

Den Borsh Corp.has annual sales of $50,735,000, an average inventory level of $15,012,000, and average accounts receivable of $10,008,000.The firm's cost of goods sold is 85% of sales.The company makes all purchases on credit and has always paid on the 30th day.However, it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day.The CFO also believes that sales can be maintained at the existing level but inventory can be lowered by $1,946,000 and accounts receivable by $1,946,000.What will be the net change in the cash conversion cycle, assuming a 365-day year?
A)-26.6 days
B)-29.5 days
C)-32.8 days
D)-36.4 days
E)-40.5 days

Accepted Answer

The answer of Den Borsh Corp.has annual sales of $50,735,000,...

Question 10

on Wentz Inc.for 2008 are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks.The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average.If this were done, by how much would payables increase? Use a 365-day year.
Cost of goods sold = $75,000
Payables = $5,000
Payables deferral period (PDP) = 24.33
Benchmark payables deferral period = 30.00
A)$ 764
B)$ 849
C)$ 943
D)$1,048
E)$1,164

Accepted Answer

The answer of on Wentz Inc.for 2008 are shown below,...

Question 11

Dewey Corporation has the following data, in thousands.Assuming a 365-day year, what is the firm's cash conversion cycle?
A)25 days
B)28 days
C)31 days
D)35 days
E)38 days

Accepted Answer

The answer of Dewey Corporation has the following data, in...

Question 12

Whitmer Inc.sells to customers all over the U.S., and all receipts come in to its headquarters in New York City.The firm's average accounts receivable balance is $2.5 million, and they are financed by a bank loan at an 11% annual interest rate.The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%.If the annual cost of the system is $15,000, what pre-tax net annual savings would be realized?
A)$29,160
B)$32,400
C)$36,000
D)$40,000
E)$44,000

Accepted Answer

The answer of Whitmer Inc.sells to customers all over the...

Question 13

Desai Inc.has the following data, in thousands.Assuming a 365-day year, what is the firm's cash conversion cycle?
A)28 days
B)32 days
C)35 days
D)39 days
E)43 days

Accepted Answer

The answer of Desai Inc.has the following data, in thousands.Assuming...

Question 14

on Shick Inc.for 2008 are shown below, along with the days sales outstanding of the firms against which it benchmarks.The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average.If this were done, by how much would receivables decline? Use a 365-day year.
$$\begin{array}{l}
\text { Project Data }\
\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 110,000 \
\hline \text { Accounts receivable } & \$ 16,000 \
\hline \text { Days sales outstanding (DSO) } & 53.09 \
\hline \text { Benchmark days sales outstanding (DSO) } & 20.00 \
\hline
\end{array}
\end{array}$$
A)$8,078
B)$8,975
C)$9,973
D)$10,970
E)$12,067

Accepted Answer

To find the decline in receivables, calculate the target receivables using the benchmark DSO: Target Receivables = (Benchmark DSO / 365) * Sales = (20 / 365) * 110,000 = $6,027. The decline in receivables is the current receivables minus the target receivables: $16,000 - $6,027 = $9,973.

Question 15

Edwards Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy.The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $35,000; the interest rate on its debt is 10%; and its tax rate is 40%.With a restricted policy, current assets will be 15% of sales, while under a relaxed policy they will be 25% of sales.What is the difference in the projected ROEs between the restricted and relaxed policies?
A)4.25%
B)4.73%
C)5.25%
D)5.78%
E)6.35%

Accepted Answer

The answer of Edwards Enterprises follows a moderate current asset...

Question 16

Atlanta Cement, Inc.buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 60 days after the invoice date.Net purchases amount to $720,000 per year.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
A)10.86%
B)12.07%
C)13.41%
D)14.90%
E)16.55%

Accepted Answer

The answer of Atlanta Cement, Inc.buys on terms of 2/15,...

Question 17

on Shin Inc.for 2008 are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks.The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average.If this were done, by how much would inventories decline? Use a 365-day year.
Cost of goods sold =$85,000
Inventory =$20,000
Inventory conversion period (ICP) =85.88
Benchmark inventory conversion period (ICP) =38.00
A)$ 7,316
B)$ 8,129
C)$ 9,032
D)$10,036
E)$11,151

Accepted Answer

The answer of on Shin Inc.for 2008 are shown below,...

Question 18

Inmoo Company's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days.Assuming a 365-day year, what is the length of its cash conversion cycle?
A)63 days
B)67 days
C)70 days
D)74 days
E)78 days

Accepted Answer

The cash conversion cycle can be calculated using the following formula:
Cash conversion cycle = Days inventory outstanding + Days sales outstanding - Days payable outstanding

Days inventory outstanding = 69
Days sales outstanding = 45
Days payable outstanding = 40

Cash conversion cycle = 69 + 45 - 40 = 74 days

Question 19

Nogueiras Corp's budgeted monthly sales are $5,000, and they are constant from month to month.40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount.The firm has no bad debts.Purchases for next month's sales are constant at 50% of projected sales for the next month."Other payments," which include wages, rent, and taxes, are 25% of sales for the current month.Construct a cash budget for a typical month and calculate the average net cash flow during the month.
A)$1,092
B)$1,150
C)$1,210
D)$1,271
E)$1,334

Accepted Answer

The answer of Nogueiras Corp's budgeted monthly sales are $5,000,...

Question 20

company has been offered credit terms of 4/30, net 90 days.What will be the nominal annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)
A)16.05%
B)16.90%
C)17.74%
D)18.63%
E)19.56%

Accepted Answer

The answer of company has been offered credit terms of...

Quiz 16: Working Capital

Pickle Inc.had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days.What was its average receivables balance, based on a 365-day year?

Whittington Inc.has the following data. What is the firm's cash conversion cycle?

firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times.Using a 365-day year, what is its inventory conversion period?

firm buys on terms of 3/15, net 45.It does not take the discount, and it generally pays after 60 days.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?

Dewey Corporation has the following data, in thousands.Assuming a 365-day year, what is the firm's cash conversion cycle?

Desai Inc.has the following data, in thousands.Assuming a 365-day year, what is the firm's cash conversion cycle?

Atlanta Cement, Inc.buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 60 days after the invoice date.Net purchases amount to $720,000 per year.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?

Inmoo Company's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days.Assuming a 365-day year, what is the length of its cash conversion cycle?

company has been offered credit terms of 4/30, net 90 days.What will be the nominal annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)