s Which of the following is NOT commonly regarded as being a a Cash discounts ts
ID: 2796783 • Letter: S
Question
s Which of the following is NOT commonly regarded as being a a Cash discounts ts Collection policy 2 variable? e Credit standards d Credit period e. Cash conversion cycle onst of goods sold (COGS) average $2,000,000 per month, and it kerps inventory of its monthly COGS on hand at all times. Using a 365-day year, 26 Your fim's c what is its equal to 50% inventory conversion period? a 11.7 days b 13.0 days c 14.4 days d 15.2 days e My calculation i 27. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the decline? Use a 365-day yearerage. I his were dne, by how much would receivables Sales Accounts receivable Days sales outstanding (DSO) Benchmarks' days sales outstanding (DSO) $110,000 $16,000 53.09 20.00 a. $ 8,078 b. $ 8,975 $9,973 d. $10,970 e. $12,067 Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? 28. Average inventory - Annual sales. Annual cost of goods sold Average accounts receivable - Average accounts payable - $75,000 $600,000 $360,000 $160,000 $25,000 a. 120.6 days b. 126.9 days c 133.6 days d. 140.6 days e My answer is: days Schalheim Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capital structure consists of common stock preferred stock, and debt. Which of the following events would REDUCE its WACC? 29. a. The market risk premium declines. b. The flotation costs associated with issuing new common stock increase. c. The company's beta increasesExplanation / Answer
25. A company's credit policy variables consider majorly four aspects i.e. cash discount (discount offer to encourage customers to pay early and reduces the risk of bad debts), collection period (ensures collection of payment on time), credit standards (helps in attracting customers and increase in sales) and credit period (allow customers to pay later within in specified time, thus helps in retaining customers). These four variables provide a base to a company to form a strong credit policy to avoid bad debt losses as well as to retain their customers. Among the options provided the one which is not commonly considered as credit policy variable is cash conversion cycle.
Therefore the correct answer is option e cash conversion cycle.
26. Inventory Conversion Period
Inventory conversion period = (inventory / COGS) * 365
COGS = $ 2,000,000 per month
Inventory = 50% of Monthly COGS
= 50% of $ 2,000,000 = 2,000,000 * (50/100) = $1,000,000
Inventory Conversion period = (1,000,000 / 2,000,000) * 365 = 182.5 days
Therefore, inventory conversion period of the firm is 182.5 days.
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