Assignment:
| Assets |
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Liabilities and Stockholders Equity |
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| CASH |
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$ 6,000,000.00 |
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ACCOUNTS PAYABLE |
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$10,000,000.00 |
| ACCOUNTS RECEIVABLE |
$ 14,000,000.00 |
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SALARIES BENEFITS AND PAYROLL TAXES PAYABLES |
$2,000,000.00 |
| INVENTORIES |
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$ 12,000,000.00 |
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OTHER CURRENT LIABILITIES |
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$ 10,000,000.00 |
| FIXED ASSETS NET |
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$ 40,000,000.00 |
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LONG TERM DEBT |
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$12,000,000.00 |
| TOTAL |
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$ 72,000,000.00 |
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STOCKHOLDERS EQUITY |
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$38,000,000.00 |
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TOTAL |
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$72,000,000.00 |
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Income Statement |
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| NET SALES |
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$100,000,000.00 |
| COST OF SALES |
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$60,000,000.00 |
| SELLING, GENERAL, AND ADMIN EXP |
$20,000,000.00 |
| OTHER EXPENSES |
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$15,000,000.00 |
| NET INCOME |
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$5,000,000.00 |
Part 1:
A. Determine the length of the inventory conversion period.
B. Determine the length of the receivables conversion period.
C. Determine the length of the operating cycle.
D. Determine the length of the payables deferral period.
E. Determine the length of the cash conversion cycle.
F. What is the meaning of the number you calculated in question E.
Part 2:
Calculate the effective annual percentage rate of forgoing the cash discounts under each of the following credit terms:
A. 2/10 NET 60
B. 2/10 NET 30