hapter Review 15-Working Capital Management ue on Dec 7 at 1159 PM PST Loud Nois
ID: 2792832 • Letter: H
Question
hapter Review 15-Working Capital Management ue on Dec 7 at 1159 PM PST Loud Noise Recordings Inc. has forecasted sales of $30,000,000 for next year and expects its cost of goods sold (COGS) to remai receivable, and $2,600,000 in accounts payable n at 80% of sales. Currently, the firm holds $2,700,000 in inventories, $1,800,000 in accounts Approximately how long does it take Loud Noise Recordings to convert its raw materials to its finished products and then to sell those goods? (Note: In all calculations, assume that there are 365 days in a year.) 30.80 days O 41.06 days O 28.74 days O 39.01 days On average, it takes from the time a sale is made until the time cash is collected from customers. Loud Noise Recordings relies on customer credit when it buys raw materials from its suppliers. On average, it takes after the firm purchases materials before it sends cash to its suppliers. What is the length of Loud Noise Recordings's cash conversion cycle (CCC)? O 23.42 days O 19.91 days O 28.10 days O 25.76 days The at Loud Noise Recordings wants to continue its internal discussions regarding its cash management. One of the finance team members presents the following case to her cohorts: Which of the following responses to the CFO's statement is most accurate? Case in Discussion O The CFO's approximation of the length of Green Melon Electronics Company's be accurate, because it will take 110 days for the company to manufacture, sell, and collect cash for its goeds. All these things mustExplanation / Answer
a)It is days inventory outstanding=365*(inventory/cost of goods sold)
=365*(2700000/(30000000*80%))
=41.06 days
It is days sales outstanding =365*(account receivable/sales)
=365*(1800000/30000000)
=21.9 days
It is days days payable outstanding=365*(account payable/cost of goods sold)
=365*(2600000/(30000000*80%))
=39.54 days
CCC=DIO+DSO-DPO
=41.06+21.9-39.54=23.42 days
It is option 2 the CFO is not considering the time to payto suppliers
Yes it is possible to have negative CCC
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