Q1.Whitson Co. is looking for ways to shorten its cash conversion cycle. It has annual sales...

70.2K

Verified Solution

Question

Finance

Q1.Whitson Co. is looking for ways to shorten its cashconversion cycle. It has annual sales of $45,625,000, or $125,000 aday on a 365-day basis. The firm's cost of goods sold is 80% ofsales. On average, the company has $7,500,000 in inventory,$5,750,000 in accounts receivable, and $2,750,000 in accountspayable. Its CFO has proposed new policies that would result in a25% reduction in both average inventories and accounts receivable,and a 10% increase in average accounts payable. She alsoanticipates that these policies would reduce sales by 5%. What effect would these policies have on the company's cashconversion cycle?
Q2.Newsome Inc. buys on terms of 4/10, net 45. It doesnot take the discount, and it generally pays after 65 days. What isthe effective (not nominal) annual percentage cost of its non-freetrade credit, based on a 365-day year?

Answer & Explanation Solved by verified expert

4.5 Ratings (643 Votes)

Old cash conversion cycle CCC DIO DSO DPO Here DIO Days inventory outstanding Average inventory Cost of goods sold 365 days DSO Days Sales Outstanding Average Accounts RecievablesTotal Credit Sales365 days DPO See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Q1.Whitson Co. is looking for ways to shorten its cashconversion cycle. It has annual sales of $45,625,000, or $125,000 aday on a 365-day basis. The firm's cost of goods sold is 80% ofsales. On average, the company has $7,500,000 in inventory,$5,750,000 in accounts receivable, and $2,750,000 in accountspayable. Its CFO has proposed new policies that would result in a25% reduction in both average inventories and accounts receivable,and a 10% increase in average accounts payable. She alsoanticipates that these policies would reduce sales by 5%. What effect would these policies have on the company's cashconversion cycle? Q2.Newsome Inc. buys on terms of 4/10, net 45. It doesnot take the discount, and it generally pays after 65 days. What isthe effective (not nominal) annual percentage cost of its non-freetrade credit, based on a 365-day year?