Contemporary Financial Management, Loose-leaf Version
Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Chapter 16, Problem 12P

a)

Summary Introduction

To determine: The length of cash conversion cycle of company B.

a)

Expert Solution
Check Mark

Explanation of Solution

Calculation of inventory conversion period:

Inventory conversion period=InventoryCostofsales365=$1,827$9,890365=67.4days

Therefore, inventory conversion period is 67.4 days.

Calculation of receivables conversion period:

Receivables conversion period=Accounts receivablesNet sales365=$1,138$13,644365=30.4days

Therefore, receivables conversion period is 30.4 days.

Calculation of length of operating cycle:

Operating cycle=Inventory conversion period+Receivables conversion period=67.4days+30.4days=97.8days

Therefore, operating cycle is 97.8 days

Calculation of payables deferral period:

Payables deferral period=Accounts payablescost of sales365=$1,166+$536$9,890+$2,264365=51.1days

Therefore, payables deferral period is 51.1 days.

Calculation of length of cash conversion cycle:

Cash conversion cycle=Opearting cyclePayablesdeferral period=97.8days51.1days=46.7days

Therefore, cash conversion cycle is 46.7 days

b)

Summary Introduction

To determine: Length of the cash conversion cycle.

b)

Expert Solution
Check Mark

Explanation of Solution

Calculation of receivables conversion period:

Receivables conversion period=Accounts receivablesNet sales365=$1,138$13,644×0.75365=40.6days

Therefore, receivables conversion period is 40.6 days.

Calculation of length of operating cycle:

Operating cycle=Inventory conversion period+Receivables conversion period=67.4days+40.6days=108days

Therefore, operating cycle is 108 days

Calculation of length of cash conversion cycle:

Cash conversion cycle=Operating cyclePayablesdeferral period=108.0days51.1days=56.9days

Therefore, cash conversion cycle is 56.9 days

c)

Summary Introduction

To determine: Length of the cash conversion cycle.

c)

Expert Solution
Check Mark

Explanation of Solution

Calculation of receivables conversion period:

Receivables conversion period=Accounts receivablesNet sales365=$1,138$13,644×0.50365=60.9days

Therefore, receivables conversion period is 60.9 days.

Calculation of length of operating cycle:

Operating cycle=Inventory conversion period+Receivables conversion period=67.4days+60.9days=128.3days

Therefore, operating cycle is 128.3 days

Calculation of length of cash conversion cycle:

Cash conversion cycle=Operating cyclePayablesdeferral period=128.3days51.1days=77.2days

Therefore, cash conversion cycle is 77.2 days

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