3. Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75%of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys onterms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 6 days, based on a365-day year. He believes he can reduce the average inventory to $627,465 with no effect on sales. By how much mustthe firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle?a. $1,004b. $943c. $823d. $1,224e. $763

inventory conversion period =Average inventory/ Cost of goods sold x 365 Cost of goods sold…

365-day year. He believes he can reduce the average inventory to $627,465 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? a. $1,004 b. $943 c. $823 d. $1,224

365-day year. He believes he can reduce the average inventory to $627,465 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? a. $1,004 b. $943 c. $823 d. $1,224

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

3. Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75%
of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on
terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 6 days, based on a
365-day year. He believes he can reduce the average inventory to $627,465 with no effect on sales. By how much must
the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle?
a. $1,004
b. $943
c. $823
d. $1,224
e. $763

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