Is there a solution for chapter 15 problem 1 in principles of managerial finance

Question

Is there a solution for chapter 15 problem 1 in principles of managerial finance 14th edition?

Company a has on average inventories of 90 days, and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they areise. Annaul sales are about 30 million. Cost of goods sold are 20 million and purchases are 15 million

a. calculate the firms operating cycle

b. Calculate the firms conversion cycle

c. calculate the amount of resources needed to support the firms cash conversion cycle.

d. Discuss how management might be able to reduce the cash conversion cycle

Explanation / Answer

Part A

OC = AAI + ACP

OC = 90 + 60

OC = 150 days

Part B

CCC = OC - APP

CCC = 150 - 30

CCC= 120 days

Part c:

Inventory = ($30,000,000) * (90/365) = $7,397,260

Accounts Receivable = ($30,000,000 * 60/365) = $4,931,506

Accounts Payable = ($30,000,000) * (30/365) = $2,465,753

Resources Invested = $7,397,260 + $4,931,506 - $2,465,753

Resources Invested = $9,863,013

Part D

Management might be able to reduce the cash conversion cycle by reducing the amount of resources being invested into it. This could be the result of reducing the average collection period by 1 week’s time. Example: ($30,000,000 * 53/365) = $4,356,164

A reduction of $575,342 in resources tied up in the CCC. Management could also reduce the CCC by increasing the average payment period by 5 days, allowing more cash to remain with the company.

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