Zahoor Industries turns over its inventory 6 times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm’s annual operating-cycle investment is $3 million. Assume a 360-day year. Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle. 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 5 days. (2) Speeds the collection of accounts receivable by an average of 10 days. (3) Extends the average payment period by 10 days. 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? If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?
Zahoor Industries turns over its inventory 6 times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm’s annual operating-cycle investment is $3 million. Assume a 360-day year. Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle. 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 5 days. (2) Speeds the collection of accounts receivable by an average of 10 days. (3) Extends the average payment period by 10 days. 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? If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Zahoor Industries turns over its inventory 6 times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm’s annual operating-cycle investment is $3 million. Assume a 360-day year.
- Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.
- 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 5 days. (2) Speeds the collection of
accounts receivable by an average of 10 days. (3) Extends the average payment period by 10 days. - 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?
If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education