Chapter 26, Problem 15P

Use the financial statements supplied on the next page for International Motor Corporation (IMC) to answer the following questions.

1. a. Calculate the cash conversion cycle for IMC for both 2015 and 2016. What change has occurred, if any? All else being equal, how does this change affect IMC’s need for cash?
2. b. IMC’s suppliers offer terms of Net 30. Does it appear that IMC is doing a good job of managing its accounts payable?

International Motor Corporation
Income Statement (in $ million) for the Years Ending December 31
	2015	2016
Sales	$ 60,000	$ 75,000
Cost of goods sold	52,000	61,000
Gross profit	$ 8,000	$ 14,000
Selling and general and administrative expenses	6,000	8,000
Operating profit	$ 2,000	$ 6,000
Interest expense	1,400	1,300
Earnings before tax	$ 600	$ 4,700
Taxes	300	2,350
Earnings after tax	$ 300	$ 2,350