WEEK 6 HW CORP FIN 4 SHOW YOUR CALCULATIONS A 11 Hootman Shi

WEEK 6 HW CORP FIN 4 SHOW YOUR CALCULATIONS (A)

11. Hootman Shipping has sales of $950,000 and cost of goods sold of $574,200. At the beginning of the year, the inventory was $65,200. At the end of the year, the inventory balance was $74,000. What is the inventory turnover rate? (Assume a 365-day year)

12. TCI Air Freight has sales of $625,000, costs of goods sold of $375,000, average accounts receivable of $30,820, and average accounts payable of $21,600. How long does it take for the firm\'s credit customers to pay for their purchases? (Assume a 365-day year)

13. Hudson Enterprises has sales of $1,040,000, average accounts receivable of $41,400 and average accounts payable of $45,600. The cost of goods sold is equivalent to 63% of sales. How long does it take Hudson to pay its suppliers? (Assume a 365-day year)

14. Bradco Supply currently has an operating cycle of 62 days. The company is analyzing some operational changes, which are expected to decrease the accounts receivable period by 2 days and increase the inventory period by 5 days. The accounts payable turnover rate is expected to increase from 24 to 28 times per year. If all of these changes are adopted, what will the company\'s new operating cycle be?

15. COP Communications has an inventory period of 43 days, an accounts payable period of 36 days, and an accounts receivable turnover rate of 28. What is the length of the cash cycle? (Assume a 365-day year)

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Solution

11. Inventory Turnover ratio = COGS / (Average Inventory)

COGS = 574,200 and Average Inventory = (65,200+ 74,000) / 2

Inventory Turnover ratio = 574,200 / 69,600 = 8.25

Days Inventory outstanding = 365 / 8.25 = 44 days

12. Debtors Turnover ratio = Sales / (Average Accounts recievables)

Sales = 625,000 and Average Accounts recievables = 30,820

Debtors Turnover ratio = 625,000 / 30,820 = 20.28

Days Debtors outstanding = 365 / 20.28 = 18 days

13. Creditors Turnover ratio = COGS / (Average Accounts payables)

COGS = 1,040,000 * 63% = 655,200 and Average Accounts payables= 45,600

Creditors Turnover ratio = 655,200 / 45,600 = 14.37

Days Creditors outstanding = 365 / 14.37= 25 days

14. Operating Cycle = Days Inventory outstanding + Days Debtors outstanding

Days Creditors outstanding change :

New Operating Cycle = 62 - 2 + 5 = 65 days

15. Cash conversion cycle = Days Inventory outstanding + Days Debtors outstanding - Days Creditors outstanding

Cash conversion cycle = 43 + 365 / 28 - 36 = 43 +13 - 36

Cash conversion cycle = 20 days