COGS are 80% of Sales. You collect 40% of sales in the month of sale and the rem
ID: 2383980 • Letter: C
Question
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.
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
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 4760Explanation / Answer
Dec Jan Feb March April May June Sales 10000 7000 6000 5000 6000 7000 Collection from Sales : 40% in the month 4000 2800 2400 2000 2400 2800 60% in the following month 6000 6000 4200 3600 3000 3600 4200 Total Collection (A) 10000 8800 6600 5600 5400 6400 4200 Cost of goods sold 8000 5600 4800 4000 4800 5600 Purchase: 50% in the month 4000 2800 2400 2000 2400 2800 50% in the following month 4000 2800 2400 2000 2400 2800 Total Purchase 4000 6800 5200 4400 4400 5200 2800 Payment for Purchase : 30% in the month 1200 2040 1560 1320 1320 1560 70% in the following month 4760 2800 4760 3640 3080 3080 3640 Total Payment (B) 5960 4840 6320 4960 4400 4640 3640 Cash Generated from operations 4040 3960 280 640 1000 1760 560
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