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COGS are 80% of Sales. You collect 40% of sales in the month of sale and the remaining 60% in the month following the sale. You purchase 50% of your COGS in the month of sale and 50% in the month prior to the sale. You pay for 30% of purchases in the month that it is purchased and the remaining 70% in the month after it is purchased.

	Dec	Jan	Feb	March	April	May
Sales	10000	7000	6000	5000	6000	7000
Cost of goods sold	8000	5600	4800	4000	4800	5600
Cash Received
Purchases
Cash Used
Cash Generated by operations
cash	1000
Accounts Rec	6000
INV	2800
Acounts Payable	4760

How much was Purchases in April?

4400 b) 4800 c) 5200 d) 5600

How much was Cash Generated by Operations in February?

1640 b) 1760 c) 1820 d) 1880

What is the Accounts Payable balance for the end of February?

3080 b) 3220 c) 3480 d) 3820

4. Suppose that Sales for the entire year were $100,000 and Cost of Goods Sold was 80% of Sales. The Inventory Conversion period is 40 days, the Accounts Payable Balance is $2,000, and the Operating Cycle is 60 days. 6. What is the Accounts Receivable balance?

4780 b) 5479 c) 6238 d) 7979

5. What is the Accounts Payable Deferral Period?

9 days b) 12 days c) 15 days d) 21 days

6. Which of the following statement is CORRECT?

a. It is always better to have a relatively short than a relatively long cash conversion cycle.

b. The length of the cash conversion cycle represents a tradeoff between risk and return.

c. The length of the cash conversion cycle has no effect on a firm's profitability.

d. The length of the cash conversion cycle might have an effect on a firm's profitability, but it is impossible to state if that effect is positive or negative.

7. All other things being equal, a policy of financing assets with a relatively ______ proportion of long-term debt will tend to ______ the variability (or risk) of the after-tax earnings of the firm.

a. large, decrease

b. small, decrease

c. large, increase

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