FIN 571 Week 3 dicsussion question - 63490

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  • From: Business,
  • Due on: Fri 09 May, 2014 (03:39pm)
  • Asked on: Fri 09 May, 2014
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** Hint - use Excel to help you and attach your spreadsheet to your message that highlights three key points of learning. Thank you! 





Cash conversion cycle exercise -- part 1 of 2 (show your work):



By using the text or online resources -- look up and use the formulas for the components of the cash conversion cycle for the following scenario (see questions below the financial statements):



Hewy, Dewy, and Lewy Inc. balance sheet and income statement for the year ending 20xx are as follows:



Balance Sheet


  (in millions of Dollars)






Cash                                                $6.0


Accounts Receivable                     14.0


Inventories                                       12.0


Fixed Assets, net                            40.0




  TOTAL ASSETS                        $72.0







Accounts Payable                         $10.0


Salaries and Benefits Payable        2.0


Other current Liabilities                   10.0


Long-term debt                                12.0


Equity                                                38.0




  TOTAL EQUITY                           $72.0




Income Statement


(in Millions of Dollars)



Net Sales                                     $100.0


Cost of Sales                                   60.0


Selling and admin. Expenses        20.0


Other Expenses                              15.0









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 that you calculated in part e?



Cash conversion cycle exercise -- part 2 of 2 (Show your work):



OK -- you have made some calculations on the cash conversion cycle -- so you are a little comfortable with that process.  Now, lets say that you are in upper management, and you want to "tighten your ship" a little to increase your cash flow just on current operations.  You ask for the following goals -- which are very reasonable:



1) a 10% decrease in average inventory.


2) a 10% decrease in accounts receivable.


3) a 10% increase in accounts payable.



While these adjustments are small and reasonable, re-do your calculations (and submit as a reply to this thread) and see just how much these small adjustments can make on the total cash conversion cycle calculation.

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