Quantitative Problem: Winston Inc. is trying to determine the effect of its inve
ID: 2722909 • Letter: Q
Question
Quantitative Problem: Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2013 sales (all on credit) were $152,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.48 times during the year. Its receivables balance at the end of the year was $13,105.77 and its payables balance at the end of the year was $7,409.22. Using this information calculate the firm's cash conversion cycle. Round your answer to the nearest whole. Round the days amounts in your intermediate calculations to the nearest whole day. Do not round other intermediate calculations.
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Quantitative Problem: Adams Manufacturing Inc. buys $9.9 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Round your answer to the nearest cent. Do not round your intermediate calculations. Use 365 day in a year.
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Explanation / Answer
Solution:
Cash conversion cycle = receivables + inventory - payables
Hence we need to compute the inventory
Inventory turnover = Cost of goods sold /Total inventory
8.48 = 152000*.75/ Inventory
Inventory = 114000/8.48
=13443
Hence the cash conversion cycle = 13443+ 13105.77 - 7409.22
= 19139.94
Solution:
The additional credit which can be forgo and use the credit would be = $9.9 million *.02 = $.198 million
Thnak you.