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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 alt="Multiple changes in cash conversion cycle Garrett Industries turns over its inventory 6 times each year; it has an average collection period of 41 days and an
average payment period of 27 days. The firm's annual sales are $3.5 million. Assume there is no difference in the investment per dollar of sales in inventory,
receivables, and payables; and a 365-day year.
a. Calculate the firm's cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.
b. Find the firm's cash conversion cycle and resource investment requirement if it makes the following changes simultaneously.
(1) Shortens the average age of inventory by 6 days.
(2) Speeds the collection of accounts receivable by an average of 11 days.
(3) Extends the average payment period by 11 days.
c. If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b?
d. If the annual cost of achieving the profit in part c is $33,000, what action would you recommend to the firm? Why?
a. The firm's cash conversion cycle, CCC, is
days. (Round to the nearest whole day.)
t
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Iculat
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udy
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Transcribed Image Text:Multiple changes in cash conversion cycle Garrett Industries turns over its inventory 6 times each year; it has an average collection period of 41 days and an
average payment period of 27 days. The firm's annual sales are $3.5 million. Assume there is no difference in the investment per dollar of sales in inventory,
receivables, and payables; and a 365-day year.
a. Calculate the firm's cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.
b. Find the firm's cash conversion cycle and resource investment requirement if it makes the following changes simultaneously.
(1) Shortens the average age of inventory by 6 days.
(2) Speeds the collection of accounts receivable by an average of 11 days.
(3) Extends the average payment period by 11 days.
c. If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b?
d. If the annual cost of achieving the profit in part c is $33,000, what action would you recommend to the firm? Why?
a. The firm's cash conversion cycle, CCC, is
days. (Round to the nearest whole day.)
t
Librai
Iculat
source Enter your answer in the answer box and then click Check Answer.
udy
Check Answer
7
parts
remaining
Clear All
ation Tools >
This course (Introduction to Finance (EIN-101-D02) Distance Spring 2021) is hased on Zutter/Smart: Princinles of Managerial Finance Brief 8Re
"pe here to search
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