Strickler Technology is considering changes in its working capital policies to i
ID: 2710093 • Letter: S
Question
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $150,000 (all on credit), and it earned a net profit of 5%. Its inventory turnover was 7.606375 times during the year, and its DSO was 42.5 days. Its annual cost of goods sold was $121,702. The firm had fixed assets totaling $48,000. Strickler's payables deferral period is 33 days. Assume 365 days in year for your calculations. Do not round intermediate calculations.
Suppose Strickler's managers believe that the inventory turnover can be raised to 9 times without affecting sales and cost of goods sold. What would Strickler's cash conversion cycle have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places.
I keep getting 50.055 for cash conversion cycle when inventory turnover is raised to 9 and CENGAGE keeps telling me I am wrong. What am I doing incorrectly?
Explanation / Answer
cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding
= 49.99 + 42.5 - 33
= 59.49 days
Notes : If inventory ratios raised to 9, then
Inventory ratio = sales / inventory
9 = $150000 / inventory
inventory = $16667
So, days inventory outstanding = ending inventory / cost of goods sold * 365
= $16667 / $121,702 * 365
= 49.99 days