A1. the inventory turnover of Long Corporation is 16, and its closing inventory

Question

A1. the inventory turnover of Long Corporation is 16, and its closing inventory is $20,000. Assumi ing there a. 22.50 days. b. 24.25 days. c. 32.50 days. d. 42.75 days. e. 50.75 days. are 360 days in a year, the company's inventory co 22. Which of the following statements is true of flotation costs? rred stock to the issuing firm. b. Flotation costs are added to the issue price c. Floatation costs are added to the cost of debt to compute the weighted average cost of d. Floatation costs result in higher funds available from the issue of preferred stock to e. Floatation costs increase the rate the issuing firm must earn to pay the preferred of preferred stock to compute the cost of preferred stock. capital of a firm. the firm. dividend.

Explanation / Answer

21. Inventory conversion period = 360 / inventory turn over ratio

= 360 / 16

= 22.5 days

Option a is correct

22. Floatation cost is the cost of issuing stock. It is a cost to the firm and increase the cost of funds. On the other hand it reduces the funds that the company raises. Since it increases the cost of funds, it also increases the rate a firm must earn to distribute dividends.

Option e is correct.

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