6. Gator Corporation currently has a current ratio equal to 0.65. If Gator Corporation increases current assets and current liabilities by the same amount, what will happen to their current ratio? a. Increase b. Decrease c. Stay the same d. Change, but more information is required to determine the direction of the change. e. None of the above. 7. On average, a firm sells $2,500,000 in merchandise a month. Its cost of goods sold equals 80 percent of sales, and it keeps inventory equal to one-half of its monthly cost of goods on hand at all times. If the firm analyzes its accounts using a 360-day year, what is the firm's inventory conversion period? a. 360 days b. 180 days c. 30 days d. 15 days e. 10 days 8. You have recently been hired to improve the performance of Multiplex Corporation which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 360-day year, what is your estimate of the firm's current cash conversion cycle? Current inventory = $120,000 Annual sales = $600,000 Accounts receivable = $160,000 Accounts payable = $25,000 Total annual purchases = $360,000 Purchases credit terms: net 30 days Receivables credit terms: net 50 days a. 49 days b. 143 days c. 100 days d. 168 days e. 191 days 9. Jordan Air Inc. has average inventory of $1,000,000. Its estimated annual sales are 15 million and the firm estimates its receivables collection period to be twice as long as its inventory conversion period. The firm pays its trade credit on time; its terms are net 30. The firm wants to decrease its cash conversion cycle by 10 days. It believes that it can reduce its average inventory to $900,000. Assume a 360-day year and that sales will not change. Cost of goods sold equal 80 percent of sales. By how much must the firm also reduce its accounts receivable to meet its goal of a 10-day reduction? a. $101,900 b. $1,000,000 c. $291,667 d. $333,520 e. $0
6. Gator Corporation currently has a current ratio equal to 0.65. If Gator Corporation increases current assets and current liabilities by the same amount, what will happen to their current ratio? a. Increase b. Decrease c. Stay the same d. Change, but more information is required to determine the direction of the change. e. None of the above. 7. On average, a firm sells $2,500,000 in merchandise a month. Its cost of goods sold equals 80 percent of sales, and it keeps inventory equal to one-half of its monthly cost of goods on hand at all times. If the firm analyzes its accounts using a 360-day year, what is the firm's inventory conversion period? a. 360 days b. 180 days c. 30 days d. 15 days e. 10 days 8. You have recently been hired to improve the performance of Multiplex Corporation which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 360-day year, what is your estimate of the firm's current cash conversion cycle? Current inventory = $120,000 Annual sales = $600,000 Accounts receivable = $160,000 Accounts payable = $25,000 Total annual purchases = $360,000 Purchases credit terms: net 30 days Receivables credit terms: net 50 days a. 49 days b. 143 days c. 100 days d. 168 days e. 191 days 9. Jordan Air Inc. has average inventory of $1,000,000. Its estimated annual sales are 15 million and the firm estimates its receivables collection period to be twice as long as its inventory conversion period. The firm pays its trade credit on time; its terms are net 30. The firm wants to decrease its cash conversion cycle by 10 days. It believes that it can reduce its average inventory to $900,000. Assume a 360-day year and that sales will not change. Cost of goods sold equal 80 percent of sales. By how much must the firm also reduce its accounts receivable to meet its goal of a 10-day reduction? a. $101,900 b. $1,000,000 c. $291,667 d. $333,520 e. $0
Related questions
Cash conversion cycle
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $272,000; its cost of goods sold is 80% of sales; and it earned a net profit of 7%, or $19,040. It turned over its inventory 7 times during the year, and its DSO was 37.5 days. The firm had fixed assets totaling $26,000. Chastain's payables deferral period is 35 days. Assume 365 days in year for your calculations.
Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations.
days
Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations.
| Total assets turnover | ||
| ROA | % |
Suppose Chastain's managers believe that the inventory turnover can be raised to 8.5 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.5 for 2016? Round your answers to two decimal places. Do not round intermediate calculations.
| Cash conversion cycle | days | |
| Total assets turnover | ||
| ROA | % |
