Chastain Corporation is trying to determine the effect of its inventory turnover
ID: 2801829 • Letter: C
Question
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (0SO) on cash conversion cycle. Chastain's 2016 sales (all on credit) were $195000; its cost of goods sold is 80% of sales; and it earned a net profit of 2%, or $3900. It turned over its inventory 6 times during the year, and its DSO was 32.5 days. The firm had fixed assets totaling $35000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open t to answer the questions below the spreadsheet and perform the required analysis late Chastain's cash convérsion cycle. Round your answer to two decimal places. Do not found intermediuate a. calculations. days pnurtagabie ouerte clo Assuming Chaétain holds Degigible amounts of casih and mark intermediate calculations. places. Do Rodngd your answers to two Roun -ROA . ent pts (0%) 2975600000 BackExplanation / Answer
Answer a)
Cash Conversion Cycle = Inventory conversion period + Average Collection period -payable deferral period
Inventory Conversion period = 365/6 = 60.83
Cash Conversion = 60.83 + 32.5 - 45 = 48.3333
Answer b)
Total Asset Turnover = Sales / Total Asset =
Total Asset = (195000/6+195000/365 * 32.5 + 35000) = 84863.01
Asset Turnover = 195000/84863.01 = 2.298
ROA = 2%* 2.298 = 4.596%
Answer c) Inventory Conversion period = 365 / 8 = 45.625
Cash Conversion cycle = 45.625 + 32.5 -45 = 33.125
Total Asset = 195000/8 + 195000/ 365 *32.5 + 35000 = 76738.01
Total Asset Turn over = 195000/76738.01 = 2.541
ROA = 3900 / 76738.01 = 5.0822%